oldye

Regulators wouldn't let an insurance company sell you insurance on your neighbors house. Moral Hazard would be too high.

what ever happened to normalizing earnings? What about all that stuff about the market not being your master? Why 8x earnings for the ops? 8x earnings is equivalent to 0 or slightly negative earnings growth in the future. And thats not taking any consideration for where the risk free rate is today. A whole lot of Berkshire's business's have been impacted by the housing bust since all the way back to 07, the earnings are depressed. Its not the market value of Berkshire's investments that you need to be concerned with, a good chunk of that is float and doesn't belong to you anyway. You need to figure out the look through earnings of the portfolio going forward, which w/ 0 cost float will accrue to shareholders. I know its a little harder than just looking at the stock prices but if thats all you do you might as well index. This is value investing 101, not rocket science. If the market is inefficient, why are you even considering it as part of your valuation method?

I think Prem will eventually be right about an Obama rally. How many more trillion dollar losses are still not in the system? 2 maybe 3? We're way closer to the bottom than anything. Then comes the cost push inflation which will do a number on a lot of companies but Fairfax's portfolio will be ok, if history really repeats we should have a rush to quality in the equity markets.

they're 7-10 year maturities, I was messing around with a calculator which indicates that they can mark these things up another 20-25% based on where 7-10 years treasuries are today (I believe they already wrote them up by 5% by year end). But thats is all financial bs because the interest is tax free, while capital gains are not.

This Ken Peak fellow is really growing on me!

The only covenant that I saw was that if cash dips below 10 million, and they want to issue a dividend it has to be covered by 1.1x ebitda or something like that. Hence the proactive action. I read an interesting article about a small pulp mill in Vancouver that was about to get shut down but was bought up in the last second by the workers. Long story short, their efficiency improved tremendously and at least according to the article they are operating profitably in this market. Its an interesting model for a business where 45% of the finished product cost is in the labor. I'd gladly dilute my stake by 15% if it got everyone in the same boat.

GDP in 1996 was 7.7 trillion

They got paid after the bail out, about 400 million in tax payer dollars split amongst 400 "key" employees. Maybe they'll make it back on volume. Of course by the time the risk in cds actually became miss priced they probably weren't allowed to write anymore business.

the best revenge is living well i http://www.deepcapture.com/and-the-beat-goes-on-jim-cramer-joe-nocera-doug-kass/

Many of the people on this board are pretty contrarian by nature. When everyone starts agreeing that the world is coming to an end its hard not to take a step back.

They should just add Berkshire to the Dow, its a price weighted index ;)

Why not focus on the part where insurers only earned about 8% on equity over the last 30 years and that most don't write insurance at a profit. Btw this is by design, it is the explicit goal of regulators to keep CR's around 100. You can huff and puff and wish all you want but until prices firm there isn't much they can do other than write less business. Berkshire's insurance companies are not only AAA, one of them has an enormous marketing budget with a low cost structure. Ajit Jain generates about 40% of the float with a group of 31 employees. Lowest cost of capital+lowest cost producer = good underwriting. It can't be replicated! As an aside, Of the 16 billion in Muni's Berkshire insurers, Fairfax owns about 3.5 billion, and I'm pretty sure Hamblin Watsa belong to the group of investors he referred to as "sophisticated."

I think its impossible to tell, if they feel like they'd be getting at least 15% after tax from buying other stocks it can be a tough decision because the credit agencies aren't giving them any love for the buybacks. As far as I'm concerned they put 3.6 billion dollars to work (FFH+Orh+Nb.to +2.4 billion common stock) last year at 15+% after taxes or 30$ a share per year... They've added more to intrinsic value in 2008 than the current market cap. Cheers guys!

I'm not a wine guy but I tried the Pine Ridge brand from Trader Joe's this week and it was something else. When these guys say Premium they mean it, it was a 64$ bottle!

isn't 25 million due in 2010?

" I have no idea if they were expanded to meet a constant demand or temporary demand." Who ever said it was a good idea to invest in companies you don't understand? The problems arise when you think something is within your circle of competence and it really isn't. When you know you don't understand then its easy. Unless you think like Peter Lynch you won't outperform investing in thousands of stocks, for us humans the only way to really do it is to focus on things we can understand and to swing only at the fat pitches.

Ok so they had 16 m in cash and inventories are up to $108,955,000 1Q downtime can take them back down to 80m-90m which should hopefully free up some cash. There is downtime being taken industry wide and it seems mills set to restart are staying off line longer than planned. It wouldn't hurt if other companies start acting more "proactively"

someone needs to explain why gold is worth 3x what it was worth in 2003, I know the world is ending but really whats the fascination? Also why does the U.S government continue to hold gold if its not there to back up the currency, why no fort Knox etf?

sounds about right!

Nope, we know that they are 7-10 munis 87% insured by Berkshire. the Q4 numbers reflect a 5% increase in value, but like Eric points there is still room for further convergence (as we know yield of a risk free muni should be (treasury rate*1-tax rate)... I figure there is still room for 20-25% in mark ups

I'm not really sure how exactly you want them to "improve" underwriting. I mean you always want some things to improve but unless they are fundamentally doing something wrong with their underwriting there really isn't much to improve. They write business in certain lines and the market price for those lines has been deteriorating badly...the only response they can have is to write less business...they can't stop hurricanes or change the way they do accounting so that the CR actually reflects the fact that they hedge against currency changes and that there is no net impact. You have to be patient, when the market hardens, the fixed costs as % of business will decrease and you'll be happy with the results. I mean common Markel CR was 99, Fairfax was at what 103-104 excluding the currency stuff...how many companies out there have a cost of capital of 4%-5% during the 3rd worst hurricane season on record?

"Over the next 5 yrs, comparable equities need to be at least 3-baggers (& higher if more risky) This should be viewed as the benchmark holding " Ah but how to quantify risk, how much more of a return must you demand from Fairfax compared to Berkshire Hathaway? Of course it doesn't have to be either or but what if it was.

"V. Prem Watsa Our muni bonds are in that seven or 10 year term. They're callable, not portable, but callable at 10 years, but the maturities of course can last longer than that. But they're callable between seven and 10 year, and we think it's likely they'll be called at that time." Doesn't sound like they think inflation, or at least treasuries yields are going to be as high as everyone else does. Capitalism seems to work fine whenever there is a mechanism to absorb excess capacity, as demonstrated by the presentation Prem gave when he showed that interest rates remain trend lower when there are no "curtains," low risk free rates of return on capital encourage investors to take risks etc. The problem is that the only time interest rates seem to trend up are when governments spend money preparing for war. It doesn't have to be a hot war, a cold war does the trick. Countries the size of the United States really need large ongoing conflicts to eliminate excess capacity. Think of the never ending war on drugs, the net effect of which creates tons of jobs, consumption while also creating a system where sick people are thrown "into the system" where in reality they're being kicked out of society(people are capital too I guess because this helps limit supply) and finally enriches the very people that we're supposed to be at war with. The government is spending war like money trying to decrease excess capacity which may or may not be enough. I'll start worrying about inflation when it feels like they are looking for a fight.

(Warning: this is meant to be a little silly. I hope to make a point about how all projections really do is let the right side of your brain be a little creative. It doesn't matter if you do multiple of book or project 15% growth into infinity, standard deviation will ensure that you won't be precisely correct but if you are conservative you can be relatively correct which is all I want to be!) is Fairfax a 33 cent dollar? more specifically are you receiving 3$ of value 5 years from now for every dollar you invest today? Lets assume todays base price of 300$ a share, what would make someone want to pay you 900$ 5 years from now? I didn't spend 4 years of my life learning to work with 2 variables and projecting growth into the future indefinitely for nothing. I'm going to put my hammer to use! Assumptions: Fairfax is finding enough opportunities in equities today to put another 1.2 billion dollars to work in the first 2 quarters leaving them with a 5 billion dollar portfolio with an equity+dividend coupon of 10% or 500 million. From that point the company makes no new equity investments for the next 4.5 years. The rest of the company, you know the insurance, convertible, muni and corporate bonds break even over 4.5 years(ok not even, makes just enough money to offset any taxes they pay on their equities.. ). the only thing that happens in 5 years is that the Equity Yield on their 5 billion dollar investment doubles from 500 million to 1 billion dollars. Slap on a 15x multiple on the yield (appropriate for market leading companies in many different industries) and boom shareholder equity is at 15 billion or 3$ for every $ you invest today. This implies that FFH could average more than 100$ a share of BV growth over 5 years using only 25% of their portfolio :o

Getting 3-4% to invest 59 billion ain't so bad?