bizaro86

While that is a good point, as presumably the go forward economic effects are similar, I think the starting valuation matters as well. The US markets were considerably more euphoric than the Italian ones, so a larger fall doesn't necessarily seem disproportionate. I thought of that, but then which economy is more tolerant of shocks? I thought the US had a stronger economy and that should count for something. Probably the US economy, but that doesn't mean it should have a smaller percentage fall. Say Italy was discounting 9% returns and earnings falls 10% and the discount rate goes to 10%. That's a 19% decline. If the US earnings stay flat (outperform by 10%) and discount rate goes from 2.5% to 3.5% (so the same earnings yield compression due to risk fears on better earnings) the loss would be 29%. Those numbers are all guesses, but the general trend would hold. Probably earnings will actually drop, at least in the short term. If US discount rates stay very low future earnings matter more than they do elsewhere, which would be an offsetting factor.

While that is a good point, as presumably the go forward economic effects are similar, I think the starting valuation matters as well. The US markets were considerably more euphoric than the Italian ones, so a larger fall doesn't necessarily seem disproportionate.

1 week cruise, free with every annuity purchase!

We have a coronavirus thread (in fact multiple) it would be great if we could leave this one for it's intended topic

DIS, LIF.TO, SRL. Sold some COST to fund the DIS.

I would say any time I'm paying a 20% incentive fee, knowing that it will be calculated fairly is important to me.

The more I think about it, the less ethical it seems. Shareholders are the ones paying for this guarantee, while management (via performance fee) are the ones benefiting from it.

That takes a lot of probitive value away from the mark on the airport. They basically guaranteed the buyer a 10%+ capital gain on the investment. On those terms, it seems likely they could have sold a small minority stake at basically any price. I wouldn't care, except they're using that mark for the performance fee.

I've been wresting with the idea for a while. But I'm not so sure travel related small (and even larger) businesses will be affected. My thinking goes that if people are cancelling their European and other overseas vacations because there are cases at their destinations or because they're afraid to share a tube with 400 other people they may instead stay stateside and go on a vacation here. Instead of not going on vacation at all, they may get in their car, do a day of driving and spend time at a destination that never saw a Chinese person. It's a lot safer that way. If it actually turns out this way, there may be a bumper year for domestic travel related businesses. I own a small travel related business. While my business is very seasonal, my bookings are down 90% this week compared to the same week last year. And my net bookings are zero, as cancellations (most specifically reference coronavirus) have outweighed new bookings. My business is focused, however, on west coast gateway cities and business travel, which are probably the most affected areas. I agree a rural B&B in a pastoral location may see a benefit, but I think it's more likely people just stay home. Fascinating. Thanks for posting. Do you have thoughts on the cruise industry? or how bad this is vs prior sars, 9/11? I was looking at the cruise industry but I also read net booking were ZERO for them recently and am having trouble figuring out if they will stay solvent given how long this could last and if the deposits come down which would use cash. The 1918 Flu pandemic had 3 waves. Came and went 3x. I didn't have this business during a past pandemic, so I dont have any good data for comparison. If there are three waves like this with a similar response lasting for months, I won't have this business after this pandemic either. :) Personally, I think airlines are a better bet than cruise lines. I enjoy a cruise, but they are a health risk at the best of times, and their target market is basically the high risk demographic for this disease. Airplanes have lots of air changes and you dont touch that much stuff. By contrast, cruise ships have a buffet for everyone to sneeze on their hands and then touch the food. Both have perishable inventory and high fixed costs, but I feel like air travel bookings will stay stronger than cruises. I also think the pricing is more rational.

I've been wresting with the idea for a while. But I'm not so sure travel related small (and even larger) businesses will be affected. My thinking goes that if people are cancelling their European and other overseas vacations because there are cases at their destinations or because they're afraid to share a tube with 400 other people they may instead stay stateside and go on a vacation here. Instead of not going on vacation at all, they may get in their car, do a day of driving and spend time at a destination that never saw a Chinese person. It's a lot safer that way. If it actually turns out this way, there may be a bumper year for domestic travel related businesses. Anecdotally, I have friend who is going on a cruise ::). Also have a friend who's going to GDC 2020. OTOH, there was a scheduled international company-wide event that got cancelled - no travel. I was going to China in May. Haven't cancelled yet. Airlines have cancelled flights to end-of-March only, so I'm waiting for extension of the cancellation to get full money back. Also to see what's China travel advisory level is by the end of March ( https://travel.state.gov/content/travel/en/traveladvisories/traveladvisories/china-travel-advisory.html ). Likely won't travel. Have couple potential international trips in July... we'll see how things go by then. None of these trips will be replaced by domestic travel. :) GDC has been cancelled after all the big companies pulled out.

I've been wresting with the idea for a while. But I'm not so sure travel related small (and even larger) businesses will be affected. My thinking goes that if people are cancelling their European and other overseas vacations because there are cases at their destinations or because they're afraid to share a tube with 400 other people they may instead stay stateside and go on a vacation here. Instead of not going on vacation at all, they may get in their car, do a day of driving and spend time at a destination that never saw a Chinese person. It's a lot safer that way. If it actually turns out this way, there may be a bumper year for domestic travel related businesses. I own a small travel related business. While my business is very seasonal, my bookings are down 90% this week compared to the same week last year. And my net bookings are zero, as cancellations (most specifically reference coronavirus) have outweighed new bookings. My business is focused, however, on west coast gateway cities and business travel, which are probably the most affected areas. I agree a rural B&B in a pastoral location may see a benefit, but I think it's more likely people just stay home.

Good idea. Added a few shares as well.

Wrote leap puts on BRK.B and SAVE

Unfortunately I think you're right. It doesn't seem like there is much if any support for BRK, and this seems like a good time to be buying 20% of daily volume to me.

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.