Parsad

Hi Petec, How did you conclude this? They've said numerous times, Sam Mitchell, Prem, Brian, Francis...there is no limitation to how much they can allocate to equities, be it float or equity, but they have to make sure the portfolio is in a position where they aren't risking a huge reduction in statutory surplus or liquidity. I asked and they told me. As I understand it regulation does not explicitly forbid it but as you say, they can't risk the surplus or their liquidity, so to all practical intents and purposes they are limited, and it shows in their behaviour, because IIRC they have never invested substantially more than book value in equities. I must check. They only had about 30% of shareholder equity in equities at the end of 2019...$5.3B versus $17.3B in shareholder equity. Assume book value fell 15% to date...to $14B, but their equity portfolio is off 40% to $3B...now equity investments to shareholder equity is 21%. They invested up to 60-70% of shareholder equity into equities at different times during their history...that means they could double or triple their current equity exposure if they wanted and still stay under historical ratios. I certainly don't think they are going to do that presently, but if stock market prices fell even more dramatically, there is no restriction on how much they could put in equities, and they could certainly go far higher than what they presently have. Cheers!

They can’t buy any more equities. Simplistically, they can invest their equity in equities but their float must be invested in fixed income. So the opportunities are in switching from treasuries to corporates at expanded spreads and buying back stock. They’re doing a little of both but neither will change their prospects much. They entered this sell off fully invested in cyclical value stocks. As a result, there’s not much they can do. Hi Petec, How did you conclude this? They've said numerous times, Sam Mitchell, Prem, Brian, Francis...there is no limitation to how much they can allocate to equities, be it float or equity, but they have to make sure the portfolio is in a position where they aren't risking a huge reduction in statutory surplus or liquidity. Hi Bryggen, While Fairfax was optimistic about equities after Trump won, they are deep value investors and have only felt that the markets provided tremendous opportunity on two occasions in the last 20 years...the collapse of the tech bubble in 2000 and again in 2009 after the financial crisis. Even when markets fell 50% each of those times, they were reluctant to invest all of their capital...so it's going to have to take a bigger drop for them to buy alot more. I think they would rather let Brian do his thing on the bond side right now, then take a ton of risk on equities...I think they will still be highly selective at this point. That may be awfully conservative, but that's they way they operate. Compare that to Charlie Munger who went all in with Daily Journal's excess capital in 2009...today, Daily Journal is the best capitalized media company in the world! While most other print media is scrambling for investors or donors, Daily Journal will probably never have to worry about financing again...or at least for 100 years or so! :D Cheers!

Okay, that's actually a reasonably good collection of news. We already knew that the equity portfolio would be a shit-show, but hopefully that is temporary. But the good news is reassuring; 1) Riverstone closed as planned, which was key for holdco liquidity. 2) FFH drew down the revolver almost fully before the lender could find a reason to screw them by pulling it. Now it's the lender's problem! Say what you want about Prem, but he's nobody's fool. There's some banker out there who probably wishes that he hadn't written that $2B revolver a couple years ago! 3) They have been hitting the corporate debt market hard. This is Bradstreet's expertise, so that is a very good sign. Look for some realized gains in 2021 and 2022 from the corporates being bought over the past month. The money is being made now, but it won't be realized until later. 4) Gross Written is up 12% and CRs are under 100, so that is exactly what most of us were hoping for on the underwriting front. Okay, this is good. We already knew about the equity shit-show, so this is helpful. It would be useful to have FFH make a general statement about the language used in its business continuity insurance contracts and the likelihood that those contracts will trigger indemnities. SJ +1! Premium pricing for insurance is only going to increase over the next 24 months. There were already huge spikes in premium pricing in certain areas, and with portfolio losses across the board, those able to write business are going to do well over the next couple of years. I truly feel that businesses that gain efficiencies now and make it through this period in the top 10-20% of their industry, are going to be the long-term players in the future who will benefit from today's tightening. Cheers!

Watermelon Webworks is our website manager...nothing from our end...might be some sort of issue they were having with their server. From July, the site will be slowly redesigned and redeveloped. I don't expect it to be offline at all, but there might be intermittent issues. It will be quite different once it relaunches officially on January 1st, 2021! You guys will love it, with the same message board atmosphere, but a ton of other offerings and activities. It will be much more informative, interactive and look very updated and modern. Cheers! Thank you, Sanjeev. Will it have HTML5 functionality? Yes. It will have all of the functionality of the newest websites. So yes, Simple Machines was free and got us here, but it will not be used going forward. Cheers!

Yes, politics will be gone soon. Probably just before we have the run-up to the election! Cheers!

Watermelon Webworks is our website manager...nothing from our end...might be some sort of issue they were having with their server. From July, the site will be slowly redesigned and redeveloped. I don't expect it to be offline at all, but there might be intermittent issues. It will be quite different once it relaunches officially on January 1st, 2021! You guys will love it, with the same message board atmosphere, but a ton of other offerings and activities. It will be much more informative, interactive and look very updated and modern. Cheers!

Hi All, Just wondering how people in our community (COBF) are holding up during the crisis. Please be honest in your votes, because if there is a need, I would like us to try and help those that might need some assistance if possible. Do not use your names if you are in need and post on this thread, but if we find that there is a significant need, I will have people contact me privately and try to find help for them. Cheers! Sanjeev

At the same time, if Fairfax had kept their puts and swaps right now, instead of being pressured by the mistake of missing a great bull market, they would have been killing it now and preserving shareholder capital. They're still going to be doing better than most, but they would have destroyed had they simply stuck to their guns and not been pressured by naysayers. Many also thought that Vito Maida's capital preservation strategy was foolhardy and looked stupid for several years. But his clients are going to be very happy compared to the general public, ETF allocators, etc. They are sleeping at night, and they know that while Vito may not get the gaudy numbers in short-term results...he's going to preserve capital and buy when things make sense. Cheers!

To all of the first line personnel (doctors, nurses, administrators, researchers, health workers, cleaning staff, etc) who are dealing with Covid-19, it's patients, treatments, research, etc, and making sure the general public exposure is reduced...thank-you! Especially those of you on this message board who are busy helping others...our deepest thanks! I couldn't help but think of the movie "The Day The Earth Stood Still", when humankind had no choice but to accept peace, while they dealt with an alien threat. Watching how quarantined patients in Italy are singing, and the world is forming a coalition on how to deal with Covid-19...well it took a global contagion to bring the world together. As the world goes through this, I wish you all well! It will be the first time in 15 years that I miss the Fairfax AGM and our annual dinner is now cancelled for the first time. I hope to see many of you this time next year, when this becomes history, and we talk about it like we did about the Financial Crisis or the Tech Wreck. All the best, Sanjeev...Cheers!

Congratulations Paul! We will miss you dearly...although we'll see you at the meetings every year! All the best from everyone here at the COBF! Make sure your successor continues to read the posts! Cheers!

Merry Christmas everyone! Thanks for all of your contributions and your friendship! Cheers!

https://finance.yahoo.com/news/brit-launches-lloyd-london-insurance-082212934.html I guess we were too early with Sequant Re four years ago...we were offering access to Lloyd's book of contracts as well as Guy Carpenter's book with our ILS business. Very disappointing! Cheers!

Not related to your question but I work in TO in the finance industry. Here is what I heard on the grapevine: CIBC makes most of their money on interest margins. Lower interest rates really hurt them. Other banks are more diversified...make more money off investment banking or other things less tied to interest rates. Fear of interest rates going down in event of another recession is why CIBC trades low. CIBC is a horrible internal culture. Everyone I know says this...I personally never experienced it. CIBC historically has always had a less diversified portfolio of business than Royal Bank and most of the other big banks. Their credit portfolio standards have historically been the worst of the big banks. When credit losses rise, CIBC gets hit harder than anyone else. TD has done the best job in the last decade to expand their book of business, especially the U.S. market. Royal Bank, TD and Bank of Montreal have all done a good job of expanding their services and book of business, and Bank of Montreal has done a good job of improving their credit quality standards. Bank of Nova Scotia has been doing a good job over the last 3 years and should be the bank to improve their banking profile the most over the next few years as they expand their wealth management business. The credit quality standards for these big banks is superior to CIBC, as is the underwriting culture between them and CIBC. Cheers!

Don't worry, the message board itself will remain the same or very similar. Ease of use will be the primary factor. Most of the changes will be around the rest of the content, utility, having guest contributors, the overall feel of how the COBF community developed over 18 years, and an upgraded more modern look and feel. Cheers!

Yo, bros...keep your pants on. COBF is going to be going a redevelopment over the next 6-8 months...thus why I haven't made certain upgrades, etc. It costs money to do a complete revamp! It will look - completely different - more modern - something I can actually treat more as a media website, rather than simply a message board - but the message board feature will be safe, and all existing posts transported over - including the section you love so much "Politics"...but it will be in its own play-pen, so you don't have to look at it if you don't want to. It will have more features, and all of the little "ignore" features you guys are looking for. Better security features. And yes, hats and t-shirts are coming, so that you guys can identify yourselves as the cult-nutjobs you are when you hold your city get togethers or go to Toronto or Omaha. Lots more as we add features, etc and redevelop COBF! Cheers!

Every time it falls below book value, I see Brian Bradstreet buying some shares. We shall know shortly! I think for long-term investors, who don't want to fiddle with their portfolio and just sleep at night...it's a buy! Cheers!

Also for those on a tighter budget, here is the phone call/teleconference auction: https://www.ebay.com/itm/123936600677?ssPageName=STRK:MESCX:IT&_trksid=p3984.m1557.l2649 Plenty of sizzle...no steak...literally, there's no food! ;D Cheers!

Personally, the current bid of $17,000 is too rich for me. I don't consider myself enough of a high roller to bid on lunch with Monish. Maybe if there was an option for just coffee. Since this is supposed to be a value investor thread, I'd like to make a couple of points about what might be hidden value for some of you. First, I'd like to say that I am more impressed than ever with the wisdom of what Pabrai is doing with Dakshana. If you want your dollar to go a long way then Monish has found a very positive way of impacting the world. I also want to call out some people on this board who like to complain about the injustices of Hunter Biden starting life on third base, or the inequalities that the left concerns themselves with. Well why don't you put your money where your mouth is and give some money to an organization that actually does something about that sort of issue? Second, I think you could mock Pabrai for having this fundraiser and say that he is just copying Buffett. I might be tempted to do the same, but there's a problem with that. Buffett and Munger say that you can't pick and choose which parts of the system to copy. They say that if you want to adopt their system, you have to copy everything. I am guessing that Monish's interactions with Charlie, Warren and others in their universe have taught him something about that. There are too many people who say, "I'm going to be just like Buffett, except for the part about ethics" or "I'm just like Buffett, except for the part about living modestly, in fact I don't even want to live with my means, borrowing heavily to consume seems like more fun." Kudos to Monish for his efforts to copy ALL parts of the system rather than picking and choosing. It's probably better to risk being mocked for copying everything Buffett does than to leave out something important due to ignorance. It's probably also worth accidentally charging $8 dollars shipping or accidentally using your personal eBay account and exposing that your hobby is collecting beanie babies, either of which would obviously open you to ridicule. Finally, since I thought we were supposed to be analysts, here's an argument that the auction presents a bargain. Even if you don't think that speaking to Monish about investing or business has value to your particular situation, Monish has had the opportunity to spend time with Buffett and Munger and has become friendly with many people who are close to them. Even if you think the only value is that maybe some pixie dust fell off on to Monish, at 37 bps relative to the cost of lunch with Buffett, maybe it's not a bad deal? Even if you thought you should make adjustments for the relative scarcity of Buffett's time versus Monish's time, or maybe adjustments for the relative AUM amounts, etc I think someone could still make arguments that the lunch is cheap on a relative basis. Plus, I suspect we could learn something from Monish about marketing and self-promotion. Now Monish, I know you read CoB&F occasionally, and as a master marketer, I'm sure you check up on your online presence . . . so, about that coffee . . . feel free to message me. https://en.wikipedia.org/wiki/Glide_Foundation Event number Year Winning bid (USD) 20 2019 $4.57 million[9] 19 2018 $4.23 million[11] 18 2017 $2.68 million 17 2016 $3.46 million 16 2015 $2.35 million 15 2014 $2.16 million 14 2013 $1 million 13 2012 $3.46 million 12 2011 $2.63 million 11 2010 $2.63 million 10 2009 $1.68 million 9 2008 $2.1 million 8 2007 $650,100 7 2006 $620,100 6 2005 $351,100 5 2004 $202,100 4 2003 $250,100 3 2002 $25,000 2 2001 $18,000 1 2000 $25,000 The first 3 guys who had lunch with Buffet between 2000 and 2002 belong in the hall of fame of value investing. What the heck ever happen to the 2019 lunch? Did that crypto guy ever had a steak lunch with Buffet at Smith and Wollensky? Even Mohnish and Guy Spiers are at #8 and paid $650,100...a relative bargain compared to the going rate. Better use of money than paying off people to correct your child's SAT score or get them on a rowing/swimming team at college! :o Cheers!

Im just kidding... relax. Im just shocked at the prices people pay for investing advice. I doubt that anyone mainly pays for an investment advice or as some one else indicated, to get their name in papers when it comes to having lunch with Pabrai. Most people want to donate for a good cause when money is used wisely and if it comes with a lunch with him, it's even better. Wallet, investment etc are just bonus. I will highly recommend reading Dakshana Foundation's annual report. Exactly right rranjan! I personally paid $21K to play a round of golf and lunch with Wayne Gretzky. I'm not going to meet him to show off or become the next Gretzky...well past my prime, as well as my best before date! I wanted to donate the money, and in turn I get to have lunch with someone I marveled at when he played hockey and as a statesman for the sport. Certainly a better use than buying an expensive car! Cheers!

Only COBF members would shit on a guy for raising money to help others! Nice! Cheers!

For a good cause...Mohnish's non-profit "Dakshana". Bidding is at $15K currently and ends tomorrow! Cheers! https://www.ebay.com/itm/Power-Lunch-with-Mohnish-Pabrai/123928887750?hash=item1cdabcc1c6:g:PKAAAOSwX-Zdl6~L

Parsad, I never told you or anyone for that matter that the items I listed in my previous post were the reasons for Fairfax underperformance during the last decade. I can only assume that you are mixing up my comments with someone else's. Added: I also don't understand how you can claim their equities have done well by excluding puts and derivatives. That is like saying a long/short hedge fund did well on the long side if you ignore their short positions. Doesn't make much sense to me. -MD I'm not saying their overall portfolio did well. I'm saying that they made macro bets on the market and economy, including those puts and derivatives, which hurt their equity picks. Prem has said as much in the annual letters. And for all intents and purposes, those macro bets were a mistake. But if you are using 3.5-1 asset to equity leverage, plus debt, plus float, then you may be hamstrung by having to make macro bets to ensure you don't suffer catastrophic losses that reduce statutory surplus when you are writing insurance business. My point was, that if they have learned from those mistakes, their portfolio should do better over time. If they haven't learned from those mistakes, their portfolio could continue to suffer from macro bets. Investors should decide what they are comfortable with before buying Fairfax. Cheers!

Out of those five items, only really the macro calls affected performance. Their equity positions overall have done reasonably well since 2008, excluding the puts and derivatives. That's what really killed about $2B in gains. As for the Watsa family involvement, Ben has only been involved for the last 3 years, while Christine has been involved for one year...are you going to tell me that was the reason Fairfax underperformed for the last decade? Fairfax is not buying the market...be it value or growth. So that's not an excuse, nor the reason why it underperformed. We all know clearly from the letters that the macro calls since after 2009 offset about $2B in gains. And that extremely conservative position left them holding a ton of cash and a ton of bonds, when equities were priced at 50 year lows. So if shareholders want to blame anything, I would say they should be blaming the macro calls on what might happen. - Going back to shareholders holding the stock or considering buying...if you think that Fairfax has learned their lesson on macro calls, Fairfax will probably do well in the future. - If you think that Fairfax will continue to try and make these macro bets, then yes, it is possible Fairfax will be out of step. I personally am betting on the former, but at the same time, I manage a considerable amount of my own portfolio and only a portion is in Fairfax. Cheers!

You have so much cash sloshing around that it is hard to find undervalued investments or write insurance business that is priced correctly. Look at the hurricanes the market has seen for the last 5 years, yet pricing pressure isn't even close to what we saw after Hugo 15-16 years ago. Fairfax doesn't have to do well every year, or year to year. All Fairfax has to do is wait for when liquidity is at a premium again. Do we really think that such low interest rates will persist on a global basis? Asset prices as a whole are all hitting highs or close to highs...inflation is non-existent at this point in time. Both elections in the U.S. and Canada...not one person, including Republican/Conservatives are talking about balanced budgets or reducing debt relative to GDP! I've never seen that! The day of reckoning for all of this easy money will come. Only a handful of countries are below 90% debt to GDP...and it ain't any of the large economies! You wait for the fat pitch! Cheers!

Lost more respect than when the stock dropped from $590 to $68 between 1999 and 2003? Now that was a sign the company had lost respect! This is value investing being out of fashion. Unless Ben Graham was wrong, eventually value will become fashionable as people pay attention to fundamentals. But when 1/2 of all capital is moving into index stocks, it's kind of hard to love value stocks. As for the silly comment by Gregmal about "nepotism"...how is it different than Howard Buffett sitting on Berkshire's board? Or the Desmarais family, Thompson family or Weston family? At least both Ben and Christine have finance backgrounds...what the heck is a photographer/farmer doing on Berkshire's board? And I know the Watsa kids quite well...they have learned carefully from their mother and father on what is ethical, what Fairfax means, how to treat shareholders, etc. I'm much more comfortable with the two of them on there than Howard Buffett on Berkshire's board...as nice a guy as Howard is! Cheers!