oldye

I'm not sure I'm a fan of Fairfax issuing shares at these prices...growing pains I guess. Perhaps more good would have been done if the company was allowed to continue buying back shares but we'll never know.

This is pretty silly, why bet against a strictly monetary phenomenon? , its never made more sense to tune out short term noise and focus on making the most out of the opportunities provided. At the rate internet use is increasing today, the entire planet will have access to the internet for the first time in less than 10 years.

"BP Makes ‘Giant’ Oil Discovery in Gulf of Mexico," http://www.bloomberg.com/apps/news?pid=20601087&sid=adF31W9._rik Packer may have hit the nail on the head here with his thoughts on resource scarcity, at least with respect to energy commodities. How many more huge oil fields like Tupi and this one in the Gulf of Mexico are lurking out there waiting to be discovered by companies incentivized by high oil prices? If we continue to find more fields like these and technology continues to progress at a rapid rate, we may make the transition to renewables fairly smoothly over the next 100 years. Also, we shouldn't forget that the oil sands and other unconventional energy plays eventually become conventional plays over time. The price of a KW of energy is dropping like a stone, they should have 1$/kw by 2012, there has to be a energy parity price point where the use of solar simply explodes and drives down the marginal cost of power close to 0!

At 90% of GDP, roughly the historic longterm average, you'd have to be very pessimistic about future growth to say this market is "speculative". Nothing I own today has even approached 50% of what it would sell for today in a private transaction...with a fat margin of safety you hardly have to worry about what the entire market is worth.

I'm not sure we're talking about the same thing but the velocity of money isn't an economic theory, it simply the amount of times money changes hands over the course of the year. You take money supply x velocity and you get GDP :).

The amount of infomercials alone should be considered as some kind of contrary indicator::)

search for "washed out" on google news, nifty little trick to read all kinds of subscription based articles!

I think that coming out of any recession, people always feel like things will never be as good or spending won't be back. The truth is that we won't know how good of a recovery we'll have without hindsight. I'll use Fairfax as an example, they used the huge plunge in the markets to set themselves up for healthy growth for the next 10 years, if you have enough business's putting money to work at a high ROI, you'll see very robust growth. I think Lehman, Bears and AIG sent the market down way below where it normally would have bottomed out. Right now, the market capitalization is about 11.5 trillion dollars, roughly 90% of GDP..historically it has fluctuated between 50% and 180%. We have had a strong rally but only because the lows were so extreme.

Inflation is not going to be a big problem in the U.S. Just watch this: http://www.youtube.com/watch?v=99Dzdc1H0wM

Companies with very wide moats were selling for 20%-25 of intrinsic value. The two this board is named after, as recently as a few months ago were available for 212 and 2100 a share respectively, while maintaining fortress like balance sheets and growing intrinsic value. You're right, this isn't rocket science, I just don't think you'll see anything better in our lifetime.

She's a twit.

Considering that technology is playing an ever increasing role in our lives and the amount of computing power you get/dollar is growing exponentially I'm not all that worried. Consider that in 2006 10 shares of Fairfax would have gotten you an adequate laptop, today 1.5 shares is enough for something most of us would find usable! At this rate by the end of 2010, 1 share will get you a sick flatscreen tv, xbox 360 w/ natal. Fast forward a a decade into the future and maybe we're talking about battery powered car that can do L.A to Vegas for less than 5$ worth of electricity. Cheers.

:)

I love how people think of the "low" and 200 day average as tangible, significant data points, it makes this so much easier when 90% of the people at the table become temperorarily autistic when you connect dots.

You are absolutely correct, thats why the buybacks below book are incredibly accretive to shareholders!

With respect to the statement that FFH has grown capital at 23%, that is not what we are talking about here. That number is the book equity, which is levered through debt and insurance float. Actual (unlevered) investment returns are lower. These are meant to be reasonable projections. Their 15 year average is 4% on bonds and 10% on stocks per 2008 annual report. This averages out to 5-6% alpha on investments, depending on portfolio allocation. However, after subtracting for below-average underwriting (losses of 2.8%, while comparable companies might average loss of 1%), I would say historical performance generated 3-4% alpha, counting both assets and liabilities. That might not be possible in future given scale of operations today (and I can guarantee the market will never price in an assumption that prem will earn 4% alpha in to eternity); I have used 1%-2% as reasonable projections that the marketplace could use as assumptions to estimate fair value. Thats fine...again I'm not sure how outperforming stocks by 10% and bonds by 5% for the last 15 years= 1% alpha but then again you take into consideration what the market might give them credit for...which is totally outside my circle of reasoning. I also think they'll be capable of generating cost free float in the future, so my base scenario is more optimistic.

"The benchmark is other insurance companies. In my base-case, I've essentially said they will generate 1% alpha relative to what the average portfolio manger for a P&C company can do." Unless the benchmark is Markel and Berkshire, I don't know how you get 1% alpha... The average insurer has grown its capital by 8% over the last couple of decades according to Buffett, Fairfax had averaged more than 23%. The average insurance company can't invest in equities and hope to earn 20%, or nearly 10% from bonds

We all have about a .8-1% chance of dying in any given year but not sure how that effects their value. Consider that they're running 18 billion and that an extra 5% return on those assets is 900 million a year or roughly the value added. 5 billion is a bargain price!

20000 shares is about 1/5000th of the company so its rather significant. Consider the fact that those shares represent about 80k in actual equity, its actually fairly significant.

Pulp prices up 24$/ton last week, it certainly looks like things are starting to get better. Cheers!

"In response to the question whether a couple of small rooms of employees are really worth $800mm or more, I would pose the question, how much value do you think Prem Watsa alone creates for FFH? I would argue at least $500 million on ability to create alpha. I changed to include all HWIC after recent performance on CDS generated by other key members." About 5 billion, without these guys the company isn't worth more than book.

We'll get the details sometime during Q3 but to me they made it sound as if the subsidy might take care of cap ex for the next 3 years.

Yu guys are nuts :)

With a market cap of 22 million it can be argued that the worst case is already priced in the common. European pulp futures indicate that we'll see prices continue to strengthen into next year. They expect to have the Canadian subsidy in place sometime during Q3 which should give the patient a sizable dose of adrenalin. It's always darkest before the dawn.

I agree with Cardboard that a meaningful amount of Fairfax's historical growth came from issuing overvalued shares. In this regard it is hard to argue against reflexivity. The price that FFH trades at is determined by Mr Market, and if Mr Market is willing to pay an astronomical price to the Fairfax treasury it then does in fact grow intrinsic value. There are religions however that believe the future path for all of us is chosen... in this sense intrinsic value doesn't change, only our perception of it does as we live life forward and it is revealed to our eyes. In this case, only our estimates of IV change as our actions (including Prem's) were already decided by some God who know the IV all along, and that IV always included the peaks and valleys of Mr Market's mood.... thus Soros' reflexivity doesn't matter as this God took it into account already in his master plan of the universe. As long as shares remain undervalued they'll have no trouble putting capital to work earning 15+%, yea they can do well issuing shares at 2.5 book to buy troubled insurers below book but so what? How many of you had been factoring that into their future capital growth? I think they'll achieve an adequate return from their current stock portfolio alone, everything else will be gravy. They have a plateful of marked down assets that they will try to revive over the next few years, probably close to a billion dollars hiding here. Then you have to consider what they will look like as insurance prices harden and premiums they collect double. The truth is we won't know the true intrinsic value, without hindsight. But I know one thing for sure is that if you believe in a "intrinsic value" you're not spending one second thinking about whether its worth 1.2x or 1.4x.