plato1976

50%+ yield... wow wondering which ones... you will have to look at the company level to make that determination. The 'market' is basically 30 top companies or 50 companies (NSE index), followed by most foriegn investors. However there are several companies in the midcap or small cap space, which savant mentions which have dropped by 50% or higher. These companies are domestic, not exposed to exchange risk and other than the economic slowdown, should do fine over the long term. the situation is like nov-dec 2008 in the US. question is how soon will the march 2009 happen :) ...though in all fairness, majority of the banks dont face that level of stress (other than the public sector banks) Yup. Plus quite a few smallcap and midcap stocks that have been around for 25+ years with no debt, significant cash on balance sheet, 5%+ dividend yield, are trading for less than cash on balance sheet even while the operating business continues to churn out cash flow. Their business model isn't one that generates 20%+ ROIC but the significant discount to cash on balance sheet and a high dividend yield provides an attractive alternative to cash. Things could get worse on the macro and keeping some dry powder makes sense, but to completely sit out waiting for cheap stocks to get cheaper is not for someone like me who is incapable to predicting the macro.

NLY looks quite attractive with 13% yield, and I feel most rate hike risk is already priced in, I am in the camp doubting rate can go much higher. But I am not familiar with the mortgage reit business model. Not sure if a 0.8nav mortgage reit is more attractive than a 1 p/b big bank ... I am not entirely sure what you mean, but banks hold a lot of AFS securities which are mainly agencies. They use deposits as their main funding source rather than repos which make them much more attractive imo. Question: when should mREITs not trade at BV? I see some of these trading at premiums and am hearing about PE and hedge funds trying to launch some these. That is my view. Only mREIT I have ever owned was NYMT when it was trading at 0.25x BV in the crisis.

How about ipad mini ? too small ?

of course, I always think the possibility is there , and the possibility is NOT low I feel super surprised that ppl are discounting this possibility In fact, if long term rate continues to rise, at some point I may even buy some DoubleLine funds

gio, obviously you are tracking this one more closely than I am so I want to shamelessly leverage your knowledge... first, what tricks did they play so that they didn't have equity hedge loss in 2q ? second, is the book value 360 literally now , or 350 (b/c we need to deduce the $10 div) ? Ok, I am using Al’s post not as a critique towards him… but a critique it surely is! And it is a critique towards anyone who think FFH successes and misfortunes can be accurately timed, and therefore it is possible to jump in at 0.9 x BV and sell at BV, repeating the process over and over again. FFH lost money in Q2 2013, but let’s look at the results: - 94.2 CR, producing and underwriting profit of $84 million - $71 million of gains in equity and equity-related investments - NO LOSS FROM EQUITY HEDGES - ($496) million of bonds losses - bonds losses of course are only paper losses, while FFH received $112 million in cash from those same bonds - BV decreased, but only to $362 And let’s look at equity results for the first 6 months of 2013: including the losses from equity hedges, FFH has recorded a gain of $176 million out of a portfolio worth $583.7 (preferred stocks) + $4,704.2 (common stocks) + $1,400.2 (investments in associates) = $6,688.1 million. A 2.63% return, or a 5.26% annualized. Now I ask: what’s so wrong with a 5.26% annual return from stocks, when you are as defensive as you have ever been in the past, and as you will probably ever be in the future? Will the stock price fall after yesterday’s results? It might. After all FFH has lost money… But, please, look at OdysseyRe: 84.4% CR for the first 6 months of 2013… even though I cannot say it is a Lancashire kind of result, it is impressive nonetheless, isn’t it? And the mind behind OdysseyRe success is now also behind all the insurance and reinsurance operations at FFH. In a low returns investment world, they are focusing on their insurance and reinsurance operations, and they are getting better and better. That’s exactly what I would be doing if I were in their stead, and therefore, although I might be mistaken, I surely have nothing to complain about! I will use any further weakness in the FFH stock price to buy more. --John Maynard Keynes giofranchi

I think his return is reasonable, no ?

Very nice ! I am in CA also. The only stock in my taxable account with a big profit is BAC I am thinking of holding it until my retirement, and then I can move out of CA for one year to sell it Is it a legal way to avoid the CA state tax ? I bought FFH in mostly taxable accounts because short term capital gains tax is 52% in California where I now live, and long term tax is bad too (at least 33%). So I wanted something that wouldn't be too volatile, that would compound at a rate that would beat my cost of leverage in BAC. I wound up selling it for a small gain to buy MBI.

I own some FFH Parsad, with all due respects, I have some questions: 1. For the past few years the equity portfolio has not been performing as well. Seems they were captured in value traps a few times. Not sure if it's just a natural outcome of their investing style (deeply discounted low quality stocks) b/c I did not look into their detailed investment records before 2004 , maybe. Their bond trading is superb. I just worry about their equity investment a little bit. Sth like BBRY is disturbing... It's a pretty big wager (percentage of book). It's hard to understand why they want to invest such a big percentage. I understand that BBRY has some assets, but the possible outcomes of BBRY are so diversified that I am not sure if it can warrant such a big percentage. <5% maybe fine but I am far from an expert... 2. As for acquiring private companies - so far I saw that they acquired some low quality corps (most of them) in some so so industry. Not sure if it's the best way to go. Many ppl want them to acquire higher quality private corps... all after all, I think Prem has terrific track record. And it's far too early to say his macro bet is dead IMHO. I am more concerned about point 1 and 2 above, but still, I think FFH should be in my portfolio... These are somewhat erroneous statements and assumptions. Let me clarify the first glaring one: HWIC is nowhere near a 100 person team. 7 principals including Prem, probably about another 6 analysts and then say 5-6 managers they have capital with (I'm guessing on that, but have some information about some managers, so consider it a calculated guess). You then also have a couple of enterprises that will be acquiring businesses in certain areas like Fairbridge and Thomas Cook. In total, I think you are talking about 20-25 people! The next one I would like to tackle is the recommendation to reduce their ROE to 6-7%. This is crazy! Historically, they've done far better...closer to 24%. With the leverage they employ, they could easily return 15% ROE by achieving a 6% return on their portfolio and keeping insurance losses to historical levels. Like Berkshire, they are going to have a significant advantage over the next 20 years when they really start acquiring private companies, and the global reach of their insurance business becomes much more pertinent. They will return 15% ROE long-term for the next 20 years. Lastly, succession at Fairfax is one of the least concerns for shareholders. Succession planning at Fairfax has been in place for many years, and the people in place are probably the best they've ever had. You have Andy Barnard overseeing all of the insurance companies...a man who achieved extraordinary results at Odyssey Re, nearly on par with Berkshire's insurance businesses. You have a decentralized investment team where the bench was far deeper than Berkshire's 15 years ago! It may be the best team out there today...they definitely have one of the best fixed income minds of the last 30 years running their bond portfolio. And Prem is already delegating many duties to subordinates such as Paul Rivett and Madhaven Menon to name just a couple. Cheers!

Fully agree with your logic, Eric. So, I don't understand why you loaded some FFH months ago ... after all, if you think the market will correct, you should keep cash b/c in a down market FFH will also go down even it's hedged by itself; and in an up market you are better off with other stocks. So in which scenario should we buy FFH ? :) :) :) The trouble for me with holding FFH for long periods of time is that when equities get really cheap, I want to load up on them. I don't want to be 50% invested in them at that time. Furthermore, I want to maximize the opportunity and not sit around in JNJ. They are limited in what they can do because they are an insurer. So the very time when the market bottoms... is the time that would be most rewarding to leave them behind. Further, if you expected the collapse to come you would be best off never owning FFH in the first place (because it too will drop). I made a mistake in holding FFH and adding to it in March 2009 -- I imagined they were aggressively buying up stocks on my behalf but it didn't happen. I realize today that my expectations were unreasonable -- they are an insurer.

How to define a "bubble" ? An unsustainable price level ? :) No idea if it's a bubble now but I believe national wide the housing price is still far from the last peak

If this turns out to be true , the current price didn't reflect it yet. And we may get nicer price down the road. Well, that's probably the point of max_pain: big hit from natural disasters; interest rate hike to hurt the remaining long duration bond; spx near all time high to hurt the hedge; some equity holding is performing terribly, like blackberry; I believe bank of ireland also pulled back a lot I wish the max_pain would show up after ER so I can buy back some at low

"A billion loss from the flood ?" I am not sure how accurate this guess is :) let's see

I am a newbie to the mining sector. So how do most junior mining corps destroy shareholder capital even when gold prices rise ?

Interesting - quite a lot jumior gold mine names were mentioned here, but I didn't dig into any of them. Both quotes above are correct. Everything at some price has value relative to its intrinsic value. We've never invested in commodity companies until Sandridge earlier this year, and now I find myself digging through junior mining companies. Never say never, because worlds collide when industries fall in value investing. Cheers!

Folks, I got a good opp to acquire a chain store for young kids education in China, and this sector has been booming recently. Per my cash flow calculation the return is decent enough. But I am really a bear on China in general (for a while). So really hesitating if I should start that business (will hire my sister to manage...) Nothing can be immune to the big environment, after all. Any suggestion ? /plato1976

15% during what kind of years ? 1980 - 2000 ? I have Schloss to his OID interview in 1989. The relevant Tweedy record is the one to the mid 1980s, after that is what they have on their website after they switched strategies. The return mentioned in Money Masters was that Tweedy had a 20 year record of doing 15% annually with a portfolio that consisted of 1/3 net-nets, 1/3 inactive (unlisted stocks), 1/3 companies they ended up controlling because they continued to buy as they were cheap. The book mentions that the returns are good, but not excellent, 15% a year net of expenses is good enough for me. It says they had over 1,000 holdings during this time, with position sizes ranging from $50 to $400k, and a few in the millions. They managed $50m at the time with this strategy. The average holding period was three years, on average 5% of the portfolio was merged or acquired a year. Also of note it says that around 1980 Tweedy acquired Asset Investors Fund, a CEF which only invested in net-nets. I wonder if anyone could get the track record of that fund off a Bloomberg or something. Here are Tweedy's results from 1975-1996. As of the early 1980s they were still doing the net-net/unlisted stuff. I'm not sure when they drifted away, but they absolutely killed the index up until 1987.

"the laws of China " ? hehe, give me a break...

Are we looking for a 30% correction ? lol this will erase this rally from last year... But that was an extremely overvalued high to begin with. Cheers!

well, since it's 4 months old, maybe it's 50% now :) Baupost holds 35% of cash. I am wondering if we should do the same too? ::) http://www.valuewalk.com/2013/01/baupost-groups-seth-klarman-sees-50-shades-of-value-in-the-market/ It is just four months old. :) " prides himself on maintaining a handsome cash balance (33 percent on average)"

Where did you get this number ? :) Is it an "old" data point ? Baupost holds 35% of cash. I am wondering if we should do the same too? ::)

I am hoping next week 's FFH ER will show a very big hedging loss and provides yet another entry point I may be daydreaming

"HOWEVER, at the end of the day, to buy Fairfax at 1x BV today I need to believe that BV/share growth can be 10%/annum. ..." in fact, I am wondering if the current book is still 380+ b/c of the huge market surge in the first quarter - this must have done some damage their short - to me the loss on the short seems bigger than their long gain. Anyone has a guess what's the current book ?

Yes, exactly, I think we should think the percentage of equity value RIMM position is not small in this sense Anyway, I still think FFH is a good investment - it's just I cannot convince myself to put > 10% on it This is from the annual report (pg. 97). The exposure to the largest single issuer of common stock held at Dec 31, 2012 was $604.7 (million), which represented 2.3% of the total investment portfolio. Hardly something to lose sleep over and thus I wouldn't consider them "heavily into RIMM". I would add that it's not like BBRY is in rough shape at all. They have nearly $3 billion in cash and no debt. They have higher gross margins that AAPL. The smartphone market is still in it's infancy. BBRY just released new products. Prem presents his rationale quite clearly in the annual report. Thanks for looking it up. I prefer to view it as a percentage of book value, but even then it's not that bad. For one thing it will take a while before it goes to zero (if it does), and over that time they get income from bonds to fill in the hole. Plus, any 100% loss isn't really a 100% economic loss due to the tax deduction. Last, if RIMM goes to zero it will be their mistake and not mine ;D That's why people pay others to make their mistakes for them.

quite frankly , I don't think you can achieve 15% or even 12.5% if you spread holding into BRK, FFH, OAK, etc., for the next 20 years investment shouldn't be made too complex; but I also don't think it can be that simple I am not a big fan of Munger but He said sth like "if you think investment is very simple, you are very wrong" - I fully agree Well, obviously that depends on where you are aiming at! Take, for instance, the thread racemize started a few days ago: “Absolute Investment Targets”. He points out Mr. Pabrai’s minimum requirement is expectation of 2-3x in 2-3 years, or 26% per annum. And that would rule out investments in such companies as BRK, FFH, LRE, OAK, MKL, LMCA, BAM, LUK, GLRE, TPOU, BH, IEP. Viceversa, I argued that exact portfolio, aided by some cash generating sources, gives you a very high probability of compounding capital at 15% per annum for many years to come. I said that the only true risk I see is the so-called “man at the helm risk”, but spreading it among 12 different companies, significantly mitigates that risk, leading to a very high probability of achieving the 15% per annum hurdle rate of compounded return. Now, please, follow my reasoning: provided I am not a complete fool, it should be obvious that I think expected value to be the same in both cases. Otherwise, I would certainly switch to Mr. Pabrai’s strategy, with its 26% expected annual return! But, I also said that, starting with a capital of $1 million, and compounding capital for 50 years, you might reach $1 billion by the end of your career and productive life. Let’s suppose the USD depreciates by a factor of 5 during the next 50 years: your $1 billion then would be the equivalent of $200 million today. Very rich by any standard, but not even close to be in the Forbes 400. On the contrary, if by chance you’d really succeed in compounding capital at the rate Mr. Pabrai is suggesting, you would be worth not $1 billion, at the end of the aforementioned 50 years period, but $104 billion!! Which would be the equivalent of $21 billion today! Definitely among the richest persons in the US and on earth! So, you see? If you are aiming at being included into the Forbes 400, you have no choice except embracing Mr. Pabrai’s strategy and expected annual return. You talked about people with a gambling addiction… well, I don’t know about the US, but in Europe extremely successful entrepreneurs are seen by the great majority of people EXACTELY THAT WAY! And that is what Mr. Gladwell tried to disprove with his article. Not only successful entrepreneurs are very rational, but, if asked to choose between “to do what they love doing” and the Forbes 400 list, they have no doubt and show no hesitation. :) giofranchi “As time goes on I get more and more convinced that the right method in investment is to put fairly large sums into enterprises which one thinks one knows something about and in the management of which one thoroughly believes. It is a mistake to think that one limits one’s risk by spreading too much between enterprises about which one knows little and has no reason for special confidence. One’s knowledge and experience is definitely limited and there are seldom more than two or three enterprises at any given time which I personally feel myself entitled to put full confidence.” - John Maynard Keynes

Eric, Are you not concerned about their equity holding ? They are very heavily into RIMM, and this one still doesn't look like a sure turn-around to me... /plato1976 What % of your portfolio are you targeting? Hope that your midas touch continues for the rest of us patient FFH holders It's roughly 50% of net worth. This is partly motivated by the fact that California makes it cost prohibitive to dance in and out of holdings. So I hope I just hold this for a long time in my taxable account. I still have a lot of BAC, but not as much and it's all hedged. So this kind of leverage I find interesting -- things turn out well, I'll keep making money from BAC and FFH at the same time. Things turn out poorly, FFH will be booking big gains and hopefully BAC will still make money. If not, hopefully the big FFH gains cancel out the cost of the BAC hedges.