oldye

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.

Soros is nuts if you ask me, the intrinsic value of the company doesn't change quarter to quarter. The guy from the conference call asking what multiple to book the stock should trade at cracked me up...the obsession with short term results is kinda retarded. I'm really surprised to see you calling Northbridge and Crum dogs after a few average quarters during the tail end of a soft market. Even if the long term cost of float is 5%, their long term return on assets is about 10, that spread has allowed them to multiply capital over 300x during my lifetime.

"During the first six months of 2009 OdysseyRe purchased on the open market approximately 1.2 million of its common shares pursuant to its previously announced common share repurchase programme, increasing the company’s ownership of OdysseyRe to 71.9% as at June 30, 2009." Si se Puede!

This business will be far more profitable if Hamblin Watsa invest its assets in something other than short-term bonds.

Calls options have an embedded put option that makes them very appropriate for certain types of positions. I love how "sophisticated" strategies involve selling covered calls which adds lots of liquidity and keeps prices rather reasonable. Valuation models for options don't take intrinsic value as a consideration, its like playing poker against players that don't check their hole cards.

cool stuff! Lets not count chickens, I was expecting about 50$ a share Q4 08 but they recallibrated, Changes in book are fun to follow even though they don't have much of an impact on my estimate of intrinsic value.

In '06 and '07 this company had CR's of 83% and 79% and Roe north of 20%. They will be fully consolidating 64.7 million in long term debt and 96 million in shareholder capital. They're paying 50 million for the last 32 million of shareholder equity they didn't own. The savings from not being a public company should be substantial. Keep bringing them home!

How would this add value to the discussions on this board?

http://www.xbox.com/en-US/live/projectnatal/ look its the wii, on crack!

What do investors know today about gold that they didn't know 6 years ago when it was 1/3 the price? Did the buying power of a dollar drop by 300% over the last 6 years? At best, gold is a speculation at these prices, you better hope some greater fool is willing to buy it from you for more than you paid.

Regulators told insurance companies that they need to maintain maximum capital levels, that is at least in part an explanation for not buying back shares below 38. If they kept going at their old rate they'd be close if not past 80% by now, but for all we know they bought back shares since so lets keep fingers crossed.

"It only takes minutes to recruit a financial whiz kid to preside over an insurance company; but it will take at least 5 to 10 years to get back to a positive balance sheet once you get rid of him." "Learn how to fire a client; and be willing to do it." "No matter what I know, there is always someone who knows more. " "Sustained bad underwriting will lose you all your best Reinsurer friends." http://www.insurancejournal.com/news/national/2009/07/08/102039.htm

woops looks like I did a repost, http://railfax.transmatch.com/ I like this site. They have up to date info on the big railroads including BNI, I started getting jittery when the coal shipments were down YoY, coal shipments were down 10+% YoY but last week numbers have shown glimpses of light. Right when we were hearing all that green shoots talk I was kind of antsy because there was no way coal shipments would be down so much.

http://www.cnbc.com/id/31831401 "Our first stimulus bill ... was sort of like taking half a tablet of Viagra and having also a bunch of candy mixed in... as if everybody was putting in enough for their own constituents. It doesn't really quite have the wallop that might have been anticipated there."

Good points Cardboard, I'm assuming they're getting 1/28th of 1 billion but its totally dependent on how much liquor they produce, could be double that amount or 70 million. The money has to be invested in environmental efficiency projects which at best will generate a few million dollars in savings every year. The good news at least is that the black liquor subsidy hasn't kept them from increasing prices as previously announced.

I was buying units north of 4 :) so was fairfax.

Berkshire would be a perfect holding at these prices except they already have large bets on Berkshire's maintaining their economic strength with the 3.6 billion in munis + reinsurance contracts. The stock portfolio is there to provide long term growth but also needs to provide liquidity which would likely come at a time when Berkshire's stock price may also be doing quite poorly. That is my guess why they haven't taken a serious position in Berkshire (they bought a little Wesco) even though it has been available at very attractive prices. I'm far more familiar with Berkshire but I'd guess that JNJ and Berkshire shares perform equally well over the next 5 years.

I guess its all relative, The relationship between intrinsic value growth and stock price is pretty self explanatory, the purchase price locks in the rate of return. Say you think company X increases its intrinsic value by about 1.7 billion dollars a year or 100$ per share. If you buy at 210, you get in on a 45% return...if you buy at 350 you get a 28.5% return. If you do what you are talking about, you could have doubled the return of the shares over the last few years but that doesn't make you right! You are speculating that someone will keep selling you the stock at a price point where the owner can sit on his ass and beat treasuries by 3000-4000 bp's per year. Now this can keep happening, but the odds are good that self interest will eventually prevail and this inane cycle will stop. The only time this wouldn't be speculating is if you end up giving up your shares to buy something that is creating even more value than you are giving up. I also don't agree that the summer time is the riskiest time to hold the stock, in fact since the price is usually so low, the risk is much lower during months where the perceived risk is high (this supports your strategy). Insurable events can happen year round, you have far more at risk when the price is higher. Your stock portfolio is probably much larger than it would be had you followed the "right" strategy but the intrinsic value" of mine has grown at a very satisfactory rate as well. To each his own.

The liquidation value is what you could get if you'd sell all the bits and pieces of the company to private investors. Its no the most adverse scenario, I think that would mean going back to the capital markets and issuing shares at current prices which would be very painful. I'm not sure what would need to happen for it to liquidated in a way that would leave shareholders holding the current capital. Maybe you can help me understand that a bit better. Cardboard, I think you can expect them to make a lot more than 35-40 a share over the next 3-4 years, thats "only" 700 mil on average, their stock portfolio will likely do that on its own. They own some fantastic stocks! If insurance rates harden like they have in past cycles, short term rates go up, we'll enjoy even loftier gains. It will be bumpy but thats what we accepted when we first purchased shares.

To be fair if you are valuing the company using BV, you are doing it wrong.

considering that there are less than 20 million shares floating around, that is a lot of volume! lets hope the company is buying back, it is very + ev at these prices!

http://finance.yahoo.com/news/SEC-Completes-Fairfax-iw-1911787137.html?x=0&.v=1

Thanks for the confirm, it looks like chemical pulp plants like the Saint-Felicien produce black liquor and is one of the 28 mills that qualify. I think that we'll know the true character of management 2-3 years in the future when looking back. If they're capable of stewarding the company through this time without permanently impairing the value of the units. Lots of times companies that recover from near catastrophe end up selling themselves before shareholders get to reap the full benefits from the risks they assumed. One take away I have is that investing in commodity companies should only be done when prices are well below the industries marginal cost of production. Natural gas below 4$ is a good starting point!

extremely poor capital allocation

Seems that just about everything that could go wrong has gone wrong. Not sure if the Canadian mill makes black liquor, the recycled mills have been crushed by the subsidies. It might be common practice, but the Abitibi ruling left a foul taste in my mouth, it must be weird for FFH to be on both sides of the lawsuit. Anyway to find out who, if anyone owns SFK credit default swaps?