Parsad

Isn't that first sip awesome! I don't actually really drink lattes much...the occasional mocha or cappuccino. I do blends of my favorite coffee grinds and then I do a pour over. Not those fancy cone pour over things all the millennials use, but the same little strainer I've used for 20 years well before the millennial baristas started doing pour overs. I use an unbleached filter, three pours with the first to bloom the grinds, and then suck that bad boy up! Damn that's good coffee! I saw a young orphaned Ukrainian boy, maybe 9-10 years old, carrying his little backpack and just crying painfully as he walked alone. Gut punch as I thought about my own niece and nephew and what if they had to go through such agony. I just don't understand how someone could do this without provocation...ridiculous!

Xerxes, don't lie! We all know you sip lattes like the rest of us! Cheers!

https://ca.finance.yahoo.com/news/billionaire-investor-bill-ackman-warns-181807581.html Ackman comments on the war. I agree with him that China is the one who can end this thing right away. Question is, will they? The war is to the benefit of their future interests in Taiwan, but at the same time, the sanctions and economic issues could destabilize China itself. Cheers!

So the liberal media was responsible for Putin attacking Ukraine? Because as we know, "Putin is a great guy!" Cheers!

You're actually going after the media when a dictator starts an unprovoked war against a country 1/10th its size militarily and 1/3rd its size in population? I too said that Putin will win out of this through concessions, since the West can't get fully involved and Putin will need to save face. But to go after the media and their "irrationality" is sorely misplaced! Cheers!

The fact is that is that if you did that...buy well below book and sell above book...it has worked out every time for 35 years...roughly 8-9 times! It also doesn't mean the "fan boys" don't concern themselves with details. There might be 3-4 people on this board who scrutinized Fairfax the way I did from 2001 to 2010 after the financial crisis. Same with Berkshire, but that was between 1999 and 2005. At some point in time, you become comfortable with management, their behavior (including risk assessment) and their ability to recover from adversity. It's not that we're ignorant, but we know the gameplan. How much do I have to analyze Coca-cola or Disney management or their gameplan to know when it is cheap or not. You cannot value management, only the business and its competitive advantages. The difference is that Buffett, Watsa, Gaynor, etc add to the competitive advantages of their underlying business...not subtract. When both the business and that management is available at a favourable price, a significant margin of safety, you are buying at a price that offsets the stuff you may not be able to assess adequately. How does Munger offset political risk...he buys Alibaba at a deeper discount. It may not work out all of the time, but it tends to work out most of the time. No doubt other shareholders share your concern. But it's probably more of a comfort issue, than a material issue. Cheers!

You're correct. Lehman was done for because it's funding was already cut by the Treasury and they couldn't find buyers for their CDS...extremely overleveraged. The naked short selling sped up the process. Again, these are companies that are vulnerable. When you push their price down fast enough, and naked shorting does exactly that, their ability to raise capital dries up. If their stock price drops from $50 to $10, how likely are they to raise equity without massive dilution? Or what is the likelihood financial institutions will let them borrow? In most cases, financial institutions usually cut the lines of credit for such companies. Fairfax is the perfect example. Because of FTD's on the NYSE, and planted articles in the media, we know the stock price collapsed from the mid-$200's USD to $58 USD in a very short period of time...less than 3 months after listing on the NYSE. I doubt Fairfax could get loans at that point, and any equity issuances would have been massive dilution. How do you sell insurance businesses that are now under media and analyst scrutiny as "finite insurance?" They had to turn to three long-time colleagues that knew the company and knew they needed short-term capital. Once they had that capital, and insurance results started coming out, the stock turned up. It was a period of roughly 6 months in 2003 that all this happened. As soon as they delisted from the NYSE and raised that money, the FTD's stopped, the stock recovered and the rest is history. But naked shorting sped the process up so that the hedgies could make a killing and possibly kill the company. Why didn't the same thing happen to Fairfax on the TSX at the same time? Because the TSX did not allow naked shorting, and fined market makers for not processing transactions within T+3. There were many companies, Overstock.com being one, where I saw FTD's that were 6 months to 9 months old! Meaning the share certificates had still not been delivered for 6-9 months to the proper owner, and the market maker was not being fined. Just nuts! As soon as the SEC closed these loopholes and started fining, the FTD's dropped like a rock, and short sellers were scrambling for shares to cover their shorts and paying up to 25% interest to borrow. This is similar to what happened with the Meme stocks, but this time shareholders screwed the short sellers because brokerages started closing trading or loopholes in those Meme stocks, and asking for higher collateral against the hedgies naked put options. Until they get rid of the timing issues between paper and electronic trading, they will not be able to fix this entirely. So naked shorting unfortunately is probably here to stay for a while, unless the SEC gets really tough with market makers or we see blockchain work its way into day to day trading. Blockchain would effectively kill naked shorting, since the certificates would transfer immediately from buyer to seller. But we are probably at least a decade away from seeing this happen! Cheers!

Bear Stearns...Lehman Bros...there were a ton of FTD's during the financial crisis. Overstock.com was not driven out of business because they had no debt. If you drive the stock price low enough, and equity issuances would result in massive dilution, and you call the debt...you drive the company out of business unless they can get cash like Fairfax did from Cundill, Markel and Southeastern Asset Mangement. Yes, virtually every business that got hurt from naked short selling was already in a vulnerable position. But that's why the hedgies target these businesses. The goal is to drive the price down as far as you can with artificial shares, so that they have no choice to capitulate to the debt holders, find a white knight or go under. In the meantime, the hedgies and their cronies sell their shorts and walk away. Wash, rinse, repeat! Cheers! https://www.federalreserve.gov/econres/notes/feds-notes/the-systemic-nature-of-settlement-fails-20170703.htm

Let's look at the ORH transaction. They sold 9.9% for $900M, giving it a valuation of essentially $9B. But ORH book value at year-end is $5.4B. Correct me if I'm wrong, but that means they sold 10% of ORH at nearly 1.67 times book! And then they went and bought back their stock, including the remaining 90% of ORH at 0.65-0.8 times year-end book value depending on which share buyback and the TRS. I'm surprised they didn't sell 20% of ORH to buy back even more stock! They will not pay 1.67 times book to buy back that 10% of ORH when they do...they are going to pay somewhere around 1.2-1.3 times book...watch! So I'm not too concerned about that 10% of ORH growing at 12-15% over the next 2-5 years before they buy it back, because Fairfax is far ahead of the game by doing what they did, and then buying back ORH at a lower valuation than when they sold. Cheers!

I agree with what you are trying to state Stubble, but I'm not sure that is fair. You can't say they had a shitty year during a bad year and then say they had an ok year during a great year. At some point, you just have to give them some credit for their work. Anyway you cut it, the things they did this year were fully accretive...whether it was by selling ORH, buying back cheap shares, TRS, growth in premium volume, paying down debt, stabilizing the hold co's cash levels, extending the global reach of the insurers, value recognition of many of their holdings...it was pretty much all good. A great year in Fairfax's history, especially after what shareholders have been through on the portfolio management side in the last 2-3 years. We know from Fairfax's history, they will issue equity and buy back their stakes in their insurance businesses when Fairfax's book is at 1.1-1.2 times or better and at $1,000-$1,100 per share. Which I imagine will happen within the next 24-36 months...probably in line with when they sell out of the TRS, you will see an announcement to buy back ORH. They are opportunistic with every asset other than perhaps Blackberry's meme debacle. Which I agree, they should have taken advantage of in some way. Can you imagine if they had? There probably would have been no need for an ORH sale. But Prem doesn't do that...he's not going to sell a position he's fixing and leave them hanging. There are certainly years where we should be calling out issues, but overall, this one ranks very well in their history! Cheers!

Congratulations on the Kia! They make great cars. I've held off replacing my car. Prices at dealers are crazy right now, and I always loved the 0%, no down financings. I don't want to pay a penny if I'm borrowing the money. You can't find those right now. So, I'll keep driving my BMW 3-series until I find the deal I want after things calm down...maybe later in the year, maybe next year now. Still looks like new and drives great! Cheers!

This documentary that just came out about the whole Robinhood/Gamestop/Citadel saga discusses naked short selling. A subject many Fairfax and Overstock.com shareholders are familiar with. It's taken nearly 20 years for this subject matter to be taken seriously...stated in the documentary as arguably the greatest fraud in Wall Street history. Fairfax's and Overstock's lawsuits from back in the day, laid the foundation for the investigations and prosecutions into many hedge funds by the Justice Department, but ended unsuccessfully for Fairfax and Overstock overall. Now, roughly 12 years later from the end of that saga, naked shorting is at the forefront of the Robinhood/Citadel saga. I remember when some of the main culprits on Wall Street, along with their crony analysts and journalists saying how ridiculous the idea of naked shorting was, and how crazy Prem and Patrick were. Even when there were fail to delivers going on nearly a year in some cases! Artificial shares used to drive down prices and drive companies into oblivion. I was warned by someone that the guys even I was writing about could put me in danger...that these were bad guys! Patrick was going after them with alarming gusto through his blog DeepCapture...he was getting threats. Some of the people in those lawsuits were charged, fined, prosecuted or shut down. Most got away scot-free! Some started their own blogs or media businesses, distancing themselves from their pasts, and even becoming "respected" writers. A couple even disappeared or died mysterious deaths! And some are reappearing in this whole Robinhood/Citadel debacle as proteges of the Sith Lord. Many on CNBC and elsewhere laughed at Byrne when he came up with that moniker for a well-known hedge fund manager, who owns a baseball team and was sanctioned by the Justice Department. These guys just keep funding proteges who end up doing the same thing over and over again like their predecessor...rinse, wash, repeat! Well worth watching! Cheers! https://www.cheatsheet.com/entertainment/gaming-wall-street-why-hbo-gamestop-stock-documentary-must-watch.html/

Yeah, I think we can put the IPOs in the "icing on the cake" bucket. Digit, Ki, Anchorage, etc...any increase in book value due to IPOs is a bonus...as well as any increase in value of the insurance subs, since we know Odyssey is carried on the books well below fair value. Just on the existing insurance earning power and allocating the investment portfolio, they can hit their 15% ROE mark as long as they keep it simple. 2-3 years of that and I'm a happy camper! Cheers!

I would like to see less debt as well. Not because they are overleveraged by debt, but they have plenty of leverage from float and investments. They just don't need to have as much debt as they do to still hit 15% ROE. That being said, debt to equity is still in great shape...I just want it to be in excellent shape! Cheers!

Yes, that's correct. Fairfax is one of the few insurers that benefits from lower asset prices...they thrive when things are tough for others. With their insurance businesses already humming and capable of writing 50% more business, what do you think will happen if they can put the portfolio to work in a down market?! Both engines firing...an awesome one-two punch! Hitting $1,000 USD in book value per share could happen well within 5 years for them...I can see 15-18% ROE years for the next two-three years. Cheers!

I've been a shareholder for over 20 years, and I've read every annual report since 1985. The company has not been this well-positioned in its history...from insurance underwriting quality, portfolio management (cash, bonds, stocks), management depth, balance sheet strength and the sheer expanse of the business as a global insurer. Yes, they messed up on the equity side over the last few years and a couple of the businesses could be walked back, but overall, they are positioned extremely well going forward and have preserved the gains in the last 18 months. As long as they just act rationally going forward and make little to no macro bets, they should be in for a few good years. Cheers!

I've cut back over the years...I only enjoy 1, maybe 2 a year now if that! I've always been partial to Montecristo cigars...especially the Montecristo Especial No.1...my favorite for 20+ years! It's a longer, thinner cigar, but lights nicely and the smooth flavours are great as you go through the cigar. Lasts about 40 minutes to an hour depending on how fast you burn. Great on the golf course, sitting on your deck having a scotch or even a really good cup of coffee! Not sure you guys can get them though...the true Cubans. But based on the quality of Montecristo cigars, I would still buy them in the U.S., even if they come from the Dominican or Nicaragua. The terroir is different, so the flavours will be different...probably a bit harsher and less smooth than the terroir in Cuba from what I've experienced. But they are generally wrapped well and burn smooth. Cohibas are great too! But the flavours aren't nearly as smooth as Montecristos. They are bold, strong notes that really need a good scotch or bourbon. Padrons are good too, but you really have to taste a bunch of different ones to see which you prefer...the flavours and strength really run the gamut. Even the Dominican, Nicaraguan version of these two brands should be nice cigars. I'm of the opinion that if you are going to smoke a cigar, smoke a good one, because you aren't going to do it often and you really want to enjoy it. Cheaper cigars are really trial and error in terms of flavour, how they are wrapped and how they light/burn. You don't want your, once in a few months cigar, to have a bitter aftertaste or it burns irregularly so that the flavours are awful and the taste becomes horrible. If you are going to go cheap and often, then a maduro wrapper will hide some of the deficiencies and smooth the flavour a bit. Cheers!

I agree with that, but he will essentially get control or concessions from the West...via puppet regime or directly. The point is, the Ukrainian people are in for a world of hurt and deprivation for a decade...the West essentially cannot intervene without the war spreading to NATO countries. Cheers!

Putin will win this unless his generals step up and replace him. Why? 1) Ukraine is not part of the European Union or NATO...so they will continue to only get limited support from outside, otherwise we risk a World War in Europe again. 2) Putin wants to protect his border and prevent any further progress of NATO or democracy...so if he gives up Ukraine, he will want major concessions...if he does not get them, he will take over Ukraine after all of the bluster from NATO. 3) Putin has some sort of illness or knows he may be deposed...this is the scenario I don't want to think of...the f**k you to the World after I'm gone scenario. In this case, his generals have to stop him. The comparison to Vietnam is a good one, but probably won't last nearly as long. If they take over cities fairly quickly, I think the World/UN will have to accept Ukraine becoming part of Russia fairly quickly, and the Russian people will have to suffer for 5-10 years as sanctions remain in effect and economic prosperity will continue to elude them...the price you pay for Putin remaining leader. Cheers!

Terrific comprehensive letter! The insurance engine is wound up tight...increasing premiums through 2021, into 2022 and likely 2023...still only writing at 1x statutory surplus (can go to 1.5x)...float and investments per share is enormous leverage if they get it right! $630 USD per share book value, balance sheet in very good position, with investment side ready to pounce better than almost any other insurer...should be trading somewhere between $800-950 CDN per share...right now! Cheers!

Terrific comprehensive letter! The insurance engine is wound up tight...increasing premiums through 2021, into 2022 and likely 2023...still only writing at 1x statutory surplus (can go to 1.5x)...float and investments per share is enormous leverage if they get it right! $630 USD per share book value, balance sheet in very good position, with investment side ready to pounce better than almost any other insurer...should be trading somewhere between $800-950 CDN per share. Cheers!

It was a pretty darn good year, and his call on overpriced areas all came true...so bring on the exclamation points! Cheers!

That's nice work Castanza! Looks good. Cheers!

I keep almost everything in tax-advantaged accounts or holding companies, so my tax bill is usually a refund or nominal at most after deducting expenses and the benefit of lower taxes for small corporations. I have very little outside of those accounts other than the equivalent of a year's income, which I keep quite liquid and don't trade much in...emergency funds. But I'm sure many of you bought crypto, which I didn't and you can't keep those in tax-advantaged accounts. Cheers!

Nice job Rk! Yes, definitely worse problems...look at Ukraine and the people who had stable lives and now suddenly nothing. Having no mortgages will let you sleep well at night. Cheers!