bizaro86

AER

I thought it was interesting when he was talking about apple - a $75-80 Billion position for Berkshire - that he characterized it as their 3rd biggest commitment after Insurance and the Railroad. Which indicates roughly how he values those two businesses within Berkshire. BNSF 2019 Pre-tax income: $7.2 billion which is 93% of UNP's pre-tax income. UNP is a $121 billion market cap, so it makes sense (assuming that UNP is not wildly over/undervalued) that BNSF is viewed as a bigger position. he also paid $44 billion for BNSF inclusive of debt and paid $35 billion or so for his AAPL stake so he could mean that too. Either way, BNSF is very valuable and has been a great purchase. I'm a heretic and think it would be good to highlight its value through say a taxable spin-off of 5-10% of the company. it already files K's and Q's (as does Energy) and would require no effort; I also don't know this, but I think insurance regulators would like it being public, but maybe not. it's all optical in that i think it would serve a lot of purposes that aren't economic: highlight Berkshire's diversification (it's not a bank stock!) highlight th degree of transparency offered byt BE and BNSF, etc. the counter would be the stub float of BNSF would trade at a discount to UNP and then people would argue for a congo discount on top of that, so it could be value destructive! i would prefer stub flotations of BE and BNSF and maybe even PCP, but I recognize that's probably not a widely held view. I think this would be a reasonable option, but they'd probably have to sell more like 20% of the railroad/utility for there to be reasonable liquidity/not a huge discount in the new stock. The problem that runs in to is that what would they do with all that extra cash? The biggest objection to BRK right now is the cash balance, if they sell $20-30 B of subsidiary stock to the public that just makes the problem worse. They could do a public tender where they offer the sub shares for BRK shares, but somehow I don't see that happening.

Bought T and AWK out of the money puts at the open. Sold BRK.B 220 puts. Bought VIAC in the money leaps. Added to Fairfax India and ALX.

Don't look for earnings growth in wholly owned business segment... Hard to square this with the enthusiasm for spending much more on capex than the depreciation charge. Maybe there is a lag on those investments, but it seems at least superficially concerning to have minimal organic growth during a strong economic expansion when spending significant capex in excess of d&a.

That might be true, but it is better to withhold an opinion until we understand who the buyer is and what sort of incentives may have come into play. I raised an eyebrow about this transaction because it seems strange that a 5% stake of a long-term asset would be sold. So, why did Fairfax sell it? Did they need to drop their stake to 49% to keep the nationalists at bay? Were they desperate for an infusion of $134m of cash? Did they find a partner with specific expertise that they wanted to bring aboard? Was there some other strategic motivation that was not articulated in the presser? One potential motivation that needs to be kept in the back of our head is that this minor transaction gives Fairfax the latitude to re-value that asset on its books. Fairfax India will book a gain of $500m based on a transaction of only $134m. And then what happens? Well, the Fairfax India's booked assets will suddenly be pumped up, which gives FFH a nice little boost to its annual management fee as well as the likelihood of a 20% performance fee in 2020. So, how much wealth will be extracted from Fairfax India unit holders from that little transaction? I'm guessing that the buyer's price for the 5% slice of that airport will be somewhat similar to the amount of money that FFH extracts from unit-holders. Maybe Prem will expand on this transaction in his annual letter and the annual report to provide more disclosure? For now, I am wary, but keeping an open mind. SJ https://www.vccircle.com/north-american-pension-fund-backs-fairfax-s-india-airport-investment-plan OMERS infrastrucure - strategic investor , this was probably done to get outside validation of big mark up in book value That is interesting. I doubt OMERS paid more than their calculation of fair value to do Prem a favor. On the other hand, the release noted that they expect to do any future airport investments though the new firm, so OMERS is getting tag along rights for ~11% on any future airport buys, which is probably worth something. I also think it's interesting that FIH didn't buy the Mumbai airport stake from GVK (which they sold this past fall). It would have been a big deal, but they could have swung it I think. I suppose at these prices they must be more of a seller than a buyer. I like the airport a lot more than the banking/chemicals businesses.

From what i have seen, his pattern has been on 'media-off' from fall till Q4 results. Then a frenzy of discussion and interviews till next fall. It seems like he often does an interview with Becky Quick on his birthday, but not this year. Maybe there was a scheduling conflict for one of them. It seems likely to me that if he wanted to do it she would have made time.

Most proved reserves would be done using a decline curve analysis (P/Z for gas). Volumetric analysis should only be used (imo) where there isnt production data. And if you dont have production data a pretty healthy dose of conservatism should be applied when assigning proved reserves. Material balance is better, but recovery factor based analyses are no substitute for a proper decline, not least because they dont provide a production rate forecast (at least not directly). And having the economic limit of a well be explicitly calculated in your reserves is important in the current price regime.

I found it useful to do a quick read of all 32 pages of posts on this thread. It provides a great look into the life of a stock. What a roller coaster ride! In the beginning there was such euphoria (and interest). And rightly so. Fairfax has a long history of investing well in Indian stocks. People were happy a few years ago to pay well above BV. What happened? The past 2 years have not been kind. - INR currency has depreciated about 10% versus the US$ (their reporting currency) - banking crises in India caused IIFL stock price to drop 50% (all financials got wacked) - Fairfax India ‘paid up’ to get control position of BIAL; looked like big overpay at the time Where are we today? - currency looks to have stabilized at current levels (we will see) - banking crises in India has forced financials to fix a few things (which is good for shareholders) and the IIFL triplets are once again coming back into favour (stock prices up 45% in the last 6 weeks) - BIAL continues to execute its business plan with 2nd runway opening in 2019, 2nd terminal on track to open next year (2021) and progress being made on monetizing the land around the airport. Bottom line, value of the airport asset is up significantly and the glide path for future growth is happening. I agree the fee structure for Fairfax India is not good. The fact the stock is listed in Canada but trades in US$ is problematic. I also do not like how illiquid the shares are. Do i believe current BV is $16.89? The problem with stocks in general and especially Indian stocks is it is tough to know. So it really comes down to do you trust management. And i do but not blindly. Is there some promotion in the current price of BIAL? Probably. Will the airport be increasing in value in the coming years? Yes. So even if the current value attached to BIAL is a little stretched the business will get there over time. With shares trading at $12.85 (my average price is about $12.45) BIAL is still being valued below the old valuation. I think there is a large margin of safety at the current stock price. Investor sentiment in Fairfax India is at its low. And with IIFL triplets on fire the margin of safety is only getting larger as we start the new year. One thing i really do appreciate is all the disclosure that Fairfax India does. It is very easy to understand what they own, when they bought it, what it cost and what they think it is worth at each quarter end. Thanks for the pdf! I had read the entire thread, and that was a key part of my decision process. Getting a feel for what the market sentiment among value investors (who are the target share buyers for anything Fairfax related) when this traded for >$18 was important to me. While I think the fees probably justify a discount to NAV, I can also easily see how the market could justify a premium to NAV for relationships/deal flow/private equity style returns.

I think you can make a case that the fees justify a pretty significant discount. The fees are basically 1.5% plus 20% of returns over 5%. That is guaranteed to be more than 20% of total returns. If outside investors get under 80% of the returns, I can see the argument that it should trade under 80% of NAV. The fees could also end up being larger if the price stays below book value. The fee is paid based on book value increases, but it is paid in shares at VWAP. So if the share price is below book when the fee is paid, they will get more shares (this works backward as well, up to 2x book when Fairfax can take cash instead). I think the investment performance is likely to justify the fees here, especially considering the current discount, so I'm a buyer right now, but the fees are significant and do justify a discount to NAV imo.

Thanks Viking! Super helpful for someone getting up to speed here. I have always had this one in the "too many fees" pile, but took a deeper look based on this thread. The increase in reported book seems like an easy obvious catalyst here. I dont think the airport is overvalued now (although I couldn't find the full 2018 annual report, would appreciate a link if anyone has). Biggest risks there seem to be an unfavorable regulatory determination when their 5 year rate set period is up in 2021, and big inflation in India which would debase the value of their capital for regulatory purposes when converted to hard currency. The development land seems like upside as well. I like the container port asset (infrastructure, probably barrier to entry). The other assets, (chemicals, banking) seem fine. Although between the airport and the banks if inflation breaks out in India a bunch of their assets would be directly denominated in rupees and wouldn't re-base. I've taken a good sized starter position here.

These are interesting ideas. So far my plan has been to buy good businesses (high ROE type stuff). This is in many ways the opposite - both are low cash flow, high appreciation assets probably trading a discount to current value. I already have a small PCYO stake in another account.

Thanks so much for sharing, and congratulations on your results! My % returns were spectacular in my older sons RESP prior to executing this strategy. Basically I just did odd lot tenders. Now there is too much money for that to provide effective percentage returns, and odd lot tenders are less frequent as well. Concentration is an interesting one (and very contrary to the consensus advice so far which has been to index). On the one hand concentration seems likely to increase volatility. On the other hand this is a small percentage of my total assets and has a long time horizon, so increased volatility for higher returns would be worth it. So far I'm happy with the returns from this strategy (all have outperformed the Canadian indices materially since purchase, except the ETF which matched). I expect to wait for a bargain, but will take your advice about waiting for a very fast pitch to heart. I dont see anything that is a true no-brainer right now from a long term perspective (and PVF.UN and DIS at the prices I bought them were obvious values).

Interesting! Thanks for posting. My children are very close in age, and I expect to access the full grant for both prior to the older graduating high school. I agree that is a creative way of maximizing grant money! I agree that these grants largely benefit people who dont need them. I think the other thing they do is encourage people to get involved with some of the borderline-predatory organizations that sell plans. From a public policy point of view they probably aren't ideal. From a personal point of view I pay enough tax I dont feel bad maximizing value to myself. I appreciate the commentary on the children's interest. This seems like a more approachable portfolio design as compared to my "regular" portfolio, which has similar names plus special situations and deep value stuff. So using it as a teaching tool is definitely part of my motivation here.

Interesting. Our mortgage is paid off already. I only bought on margin during 2008-2009, and had it paid off very quickly. I would expect to use the HELOC capacity from our house (which is already arranged) to make investments if/when there is another large downturn.

I like an international index more than I like SPY right now (because I think valuation matters). And obviously I'm going to continue watching these, and if something happens to go Tesla-Parabolic I would sell, or sell if the thesis changed etc. The goal would be to hold them all for the full time period, but I'm willing to pay attention. The Voya trust is exactly the idea I'm going for here, with hopefully a more updated group.

This is something I have considered, and is why I'm planning to mostly do the same positions (3/4 identical right now). These portfolios are already getting diversified and will continue to get more so over time, which should help as well. The dollar amounts are small enough here that I will make up any differences for fairness purposes. I'm willing to take more risk than an index here, because effectively this money is mine with a long time horizon. It will almost certainly not cover the cost of school/starting-in-life, so I expect to add funds for both from other resources, and this is a small portion of total assets. Your point about equity is well taken, and you've convinced me to make the positions the same this year/going forward. Even perceived unfairness is probably a bad idea, and it's hard to feel two accounts that are exactly the same is unfair...

Reasonable choice and would be easy. I have an index fund in there already, want to do one new position per year, and this doesn't seem like an optimal entry point into SPY to me.

Yeah, I could merge it into a family account. Except they're held (by historical mistake) at 2 different brokers and 1 in my name and 1 with my wife. The cost of getting it merged exceeds the present value of the commission stream I expect to pay. I like this idea anyway, because it isnt very much work, and I think it will be useful as an educational tool when they're a bit older. Both because it is an understandable strategy and because it will show significant gains on single positions, which hopefully helps underscore the value of compounding.

I manage very small portfolios for each of my children in Canada's RESP program. It is designed to save for children's education, and comes with a government grant on contributions, as well as tax deferral (and eventual taxation in the children's name). However, the limits are relatively low, and so each year I have a few thousand dollars to invest for each child in their account. Because of the small-dollar annual investments, I've been trying to do a "keeper" stock strategy to keep trading costs down. Essentially, buying one stock per kid each year and holding it until maturity. Therefore, I'm looking for quality businesses that can reasonably be expected to have decent business results for a long period of time, trading at reasonable valuations. (Simple, right?) Anyway, my picks so far have been: Year 1) Canadian index fund Year 2) Partners Value (a leveraged play on BAM) Year 3) DIS Year 4) One kid got CNQ, one got AER This is year 5 of the portfolios, and I'm not sure where to go next, so I thought I'd throw it open for discussion. I'm considering Viacom, although I'm not sure if that has the set-it-and-forget-it business quality I'm looking for. I'm also thinking Fedex will be a reasonable compounder after they get past their fleet renewal capex. I still like COST but the price is too high to add here. Probably right now I'm leaning BRK.B, but would love suggestions/comments. I might split between the kids again as well.

I think total addressable market is an important concept for multi-baggers. If there isn't white space in the market they can expand in, it will be hard to get truly large multiples. This probably depends how many baggers you're looking for. A double or triple could be a little bit of growth combined with multiple expansion, but once you are going for 10x or more you need significant business expansion. The only significant multi-bagger in my portfolio right now is ROST. I think retailers/restaurants are in many ways great growth businesses. If they've figured out a plan that generates high ROEs in multiple regions, it seems pretty likely that it would transfer to the whole country. That gives you a potentially long runway for high ROE reinvestment if you catch it early enough. Munger's example of Costco fits this perfectly. I got into that one too late to get to any truly large multiple of my initial purchase price, although I think I'm close to 2X (mostly on multiple expansion...).

Does the building have positive pressure into the hallways? I own a condo where the guy across the hall stays in his unit smoking pot 24 hours per day as far as I can tell. There is makeup air coming in to the hallways that keeps the smell mostly in his unit, somewhat in the hallway, and not at all in my unit. Maybe the makeup air could just get turned up? Super might be willing to do that to reduce complaints?

BG - is there a lot of effort involved with 1031? I thought it was just a form to be signed by the buyer. I've seen a few of those contingencies in listings but nothing we've put a bid on had that stipulation. 1031s are for commercial properties I believe 1031 is for investment properties. A residential property used as a rental could qualify, if I understand correctly.

Xerxes, of Fairfax’s current staple of larger investments it looks to me like Recipe may be in the most difficult situation. Their issues is not Recipe specific; restaurant stocks in Canada are really in a tough position. Here in Vancouver they are being hit with the perfect storm: 1.) big increase in property taxes by the city (8%) 2.) big increases in minimum wage of 6-7% every year for the last 3 years straight (with more big increases already confirmed by the Provincial government) 3.) shift with consumers from eating in restaurant to eating at home (with Skip the Dishes, Uber Eats who take as much as 25% of the order value etc) 4.) steady increase in health care costs What you see across the board is restaurants are unable to increase revenue / cut costs fast enough to offset all the cost increases. 2020 will likely be another tough year for restaurant stocks. The good news for Recipe is the stock has already sold off pretty aggressively in 2019. The question is if we have seen the bottom in profitability or if more bad news is coming in 2020. At some point the sector will be a buy... not sure if we are there yet. (3) is also bad because it hits high margin drink orders. So you get a lower average cheque size with lower margins, plus pay big commissions.

I buy dividend stocks from the USA in my retirement account, because the Canada-US tax treaty means no withholding tax is taken. For countries where that isn't true, I buy dividend stocks in my non-registered accounts. My tax situation is such that I can generally use the tax credit from foreign withholding taxes, so it doesn't change the amount of total tax I pay, it just changes who I pay it to.

Why did they tell you never to do that again? That's weird..... Are your living expenses mostly paid by credit card? There are lot of credit cards that offer zero fee forex convesion. They said they don't have a Canadian banking license. They wanted to know if I primarily had the account for forex or primarily for investing/trading. I said the second, which is absolutely true, the forex was just an incidental benefit. I am going to stop, because IBKR is considerably better than the other brokerage options available to me as a Canadian, and I got the distinct impression that I would be let go as a client if I didn't. I hadn't thought of the credit card idea. I do have a USD mastercard with no foreign exchange fees. However, I checked the currency rates on the mastercard site, and even for banks with 0% fee there is a 0.5% spread. By contrast, I checked IB today and their forex rates have a 0.002% spread from bid to ask (and I often get fills in between the bid and ask). Add their commission and the total cost is generally about 0.02% for the size of trades I do. I've done Norbert's gambit previously, and my round trip costs at my Canadian broker tend to be $20 in commission (2 stock commissions) per conversion. Sometimes I make a few dollars and sometimes lose a few dollars on the trade itself, which seems to average out. Basically just stock movements in the few seconds it takes to exercise the second trade. I tend to do about $10000 at a time, which makes the cost 0.2%. So ~10x as much as IB, but still less than half as much as a no-fee credit card. I've probably unreasonably optimized this, as even the no-fee card version would only be ~$500/year. But IB was roughly $20/year, so it seemed worthwhile to do it.