Grenville

Oldye, How did you know that Fairfax brought the USG deal to Berkshire? Is that information documented somewhere? (interview, filing, conference call, article)

Q: In March when markets turned, you hedged 25% of your equity portfolio (after removing hedges in late 2009) why? A: “Stock prices have gone up from March 9, 50% to 60% but we test things. We look at the biggest potential risk such as a drop in stock markets of 50% and, at same time, a one-in-250 catastrophe in the insurance world such as a US$100 billion event. This would be a hurricane hitting Miami or a major earthquake in California.” “By hedging 25% of our portfolio we could handle both those events with basically no impact on our cash in our holding company. That’s the type of protection we like to provide our shareholders and company with.” http://network.nationalpost.com/np/blogs/francis/archive/2009/10/30/smartest-guy-in-the-room-on-markets.aspx still reading the article, but that answer jumped out at me, given the discussion.

Just so there's no confusion.. On October 14, 2009, the company issued a notice to the holders of all of its 6,000,000 outstanding Series A and Series B cumulative redeemable preferred shares that it intends to redeem all of those shares during the fourth quarter of 2009. This does NOT refer to the Odyssey Re Preferreds. I couldn't quickly find much info on the two FFH preferreds, it doesn't look like they are listed like the newly issued FFH-C

Fascinating interview with Andrew Ross Sorkin on Charlie Rose recounting details from the economic crisis. Surprising to hear about all the secret meeting in early 2008 (pre june) such as Lehman trying to sell itself to many including Warren. Also color on the various actors including Paulson, Fuld and others...He definitely entices you to read his book, but he clearly has access to information not many have. Cheers! www.charlierose.com You can find his interview under the "Archive" tab on the main page.

Thanks for the info GaliPart! Very nice.

Details in regards to the buyout of Odyssey released on edgar! http://www.sec.gov/Archives/edgar/data/1137048/000095012309047403/0000950123-09-047403-index.htm The following link has the discussion regarding the back and forth on the offer price. http://www.sec.gov/Archives/edgar/data/1137048/000095012309047398/0000950123-09-047398-index.htm

Sounds good to me! I'm in.

http://showsupport.typepad.com/odyssey/2009/09/whitney-tilson-mp3.html

From today's posting of the second half. BECKY: All right. Let me go at this another way. Let's pretend you're on a desert island for a month. There's only one set of numbers you can get. What would it be? BUFFETT: Well, I would probably look at-- perhaps freight car loadings and-- perhaps-- and-- and truck tonnage moved and-- but I’d want to look at a lot of figures. (LAUGHTER) http://www.cnbc.com/id/32870258

Very interesting discussion! Thank you mhdousa for posting the exchange between Atul Gawande and Charlie Munger. That is priceless!

Thanks for posting this interview! I enjoy Janet Tavakoli's point of view given her background on Wall Street. Interesting times.

Does this not apply from the prospectus: "On and after October 20, 2010, we may redeem the series A preferred shares, in whole or in part, at any time, at a redemption price of $25 per share, plus declared and unpaid dividends, if any, to the date of redemption. At any time prior to October 20, 2010, if we are required to submit to the holders of our common stock a proposal for any matter that requires, as a result of a change in Delaware law after the date of this prospectus supplement, for its validation or effectuation an affirmative vote of the holders of the series A preferred shares at the time outstanding, whether voting as a separate series or together with any other series or class of preferred stock as a single class, we have the option to redeem all of the outstanding series A preferred shares at a redemption price of $26 per share, plus declared and unpaid dividends, if any, to the date of redemption. "

My guess and it's only a guess is this: a) They get redeemed at $26 early with the most recent declared dividend b) They become Fairfax Preferreds Otherwise I don't know how they will reconcile the dividend feature on the preferreds before the common stock since the common will be acquired. Also, how will they deal with the feature for electing directors to the board if the dividend has been suspended for so many quarters.

I thought these words from Benjamin Graham in Intelligent Investor (1949) are applicable. He is speaking in regard to "Bargain Purchases" in chapter 1. “Since the selection of these issues naturally requires more than a little skill and good judgment, it is no business for the tyro or the superficial practitioner. It is desirable and perhaps necessary that such transactions be passed upon by a competent security analyst who is free from some of the besetting prejudices of his guild. But their distinctive feature, as we see it, is this: Once a competent analysis has been made and the salient facts presented, the intelligent investor will have the material needed to satisfy his own mind that the commitment is sound and attractive. He will not have to subordinate his own judgment to that of his advisers – which is often required of him in other types of security operations.”

Thanks for posting the reply.

When they raise that equity, could they potentially get premium pricing above current prices on the large block of shares they sell? Could they have already talked to interested parties about the price the interested parties are willing to pay for a decent chunk of shares?

Ya'll who did that option thing with ORH from a few weeks ago....wow :o Wherever the price ends up... Article from Bloomberg: http://www.bloomberg.com/apps/news?pid=20601087&sid=aQrsv4qWZCQ8

"Fairfax intends to issue new equity under its existing shelf prospectus, the proceeds of which would be used to fully fund the proposed acquisition of Odyssey Re shares. Following completion of the proposed acquisition of Odyssey Re and the proposed Fairfax new equity issuance, Fairfax expects to continue to have in excess of $1 billion in cash and marketable securities at the holding company level." Sounds good to me. Nice job guys!

Where do you find such block trade data, especially for after hour trades? Is it available on a basic site like yahoo or google, or do you need to use a brokerage service?

Great point! It's funny how psychologically we see what we want to see...Thank goodness for Charlie Munger.

Hey guys, Third Avenue's latest letter just released today. There is an interesting read on 363 sales related to bankruptcy proceedings in the Third Avenue Value section of the letter. http://www.thirdave.com/ta/documents/sl/shareholderletters-09Q3.pdf

From the Southeastern/Longleaf Conference Call October 7, 2008: "So if we start with Dell. Dell is going to report earnings of something around $1.50 and we’ll talk in a second about the economic sensitivity of that but if they earned roughly a $1.50 of GAAP earnings per share that would equate to $2 of real free cash earnings because most people understand their negative working capital model and their whole kind of vaunted supply chain which creates a cash conversion cycle that is better than the reported profits, and that means around $2 of free cash flow on a stock that has $5 a share of net cash and no net debt. So at today’s close of around $14 a share, an investor is paying $9 for that $2 of free cash flow before we talk about whether that moves up or down with the economy so that is kind of an unbelievable four and half times after tax free cash flow multiple in very rough terms. What is further interesting about that is that is on a profit stream whose margins are depressed, not just down. So Dell had about five years of 8% average type operating income margins and now they’re bouncing around 5-6% so it is anything other than peak margins. And that is also against the back drop of management saying that they’ll get 2 billion of cost saves which would get you back to an 8% normal operating income. So on today’s trough margins without assuming that kind of improvement, we’re at this four and half times real PE if you will or P-to-FCF. And then if you look, you know if you look at what that is comprised of, this is a company that over ¾ of that free cash flow comes from businesses and government. So the consumer may retrench and there may be you know competitive issues with Apple who makes a fantastic machine and HP is coming back and all the headline stuff, but the bottom line is businesses and governments who make up the vast majority of sales and who are usually replacing rather than buying new machines are very unlikely to totally grind to a halt and make our free cash flow an irrelevant number. Looking at the product line, if you look at notebooks, the replacement value of those, the dollar profit pool on those compared to desktops and you look at servers and stores which are huge growth areas and very much related to internet usage. All of those things are over 70% of their profits. So the desktop which seems vulnerable is a very small part of this whole puzzle. And so this map which is not difficult to get at or to see is fully appreciated by the company and by Michael Dell himself. So Michael has spent $200 million of his own money over the last six months, paying in the low 20’s to buy personal stock, even though he already has billions of ownership which is very telling and the company likewise has spent $1.4 billion of their cash in the last quarter repurchasing their stock. The $1.4 billion is just an amazing number because if you annualize that, that is over 20% of today’s market cap that they are on pace buying their shares in. And so you look at this and you say, is the panic right and this stock really should be priced at 14 or is Michael and the company and any kind of rational measure of net present value of free cash flows right and $14 is just nothing but an opportunity. We obviously vote the latter and continue to add as they do. " I have attached the transcript.

Nice points Jegenolf! It seems like there are a lot of subtleties to the insurance business that aren't entirely apparent to the untrained observer. I'll list some of the points brought up in the previous posts so we're all on the same page with regards to facts. 1. CR (combined ratio) is not a clean cut set in stone number. Its based on assumptions for reserves for future payouts on losses. Hard to compare CRs without looking at how actual losses turn out. 2. Different companies account for the present value of their future reserves. Fairfax doesn't discount their future reserves back to the present day. They just use actual losses they expect to pay out and don't discount them with any interest rate. This seems like the most conservative approach. How would one pick the discount rate for a present value calculation? 3. Better to over reserve than under reserve. The value of tax deferral is extra float to invest until favorable reserve development. Better to surprise positively than negatively. I would imagine there is a limitation set on how much one can over reserve. 4. CR is one piece of the puzzle, the investment returns needs to be factored in along with how much of capacity is being used. Some companies hedge out currency risk through the investments 5. Shareholder equity along with CR maybe a better way to compare business performance between different insurers Feel free to question my assumptions here. I would prefer that we all get the fundamental facts straight to make the best conclusions here! Great insight, much appreciated!

In the process of reading through Andrew Cuomo's Bank Bonus Report and I found this chart very interesting. It's nice to see the distinction between banks and relative compensation levels. Here is a link to the report: http://www.oag.state.ny.us/media_center/2009/july/july30a_09.html The chart is attached below.

I did some searching and it looks like the article comes from a book written by Peter Drucker. The book has great reviews on Amazon so I decided to buy it. Thanks for posting the article! http://www.amazon.com/Management-Challenges-Century-Peter-Drucker/dp/0887309992/ref=ed_oe_p