Txvestor

My view here is that the interests of the average american citizen and those of giant multinational corporations have diverged and been so ever since NAFTA. And in many instances they are diametrically opposed. One side has the lobbying power and ability to manouver a very archaic political system of rules and governance which is the US system, and the other has the votes. The people however do not have quite the same ability to navigate the political system and so their will is being drowned out. This break in the transmission mechanism is leaving the public very angry with the political and other classes of DC elites whom they see as serving the corporations and at their expense. And I have to say that perspective is with some justification. If you look at every single law passed in this country in the past couple of decades, it intentionally or not(I believe in the former) favors corporations over small businesses and multinationals over american based manufscturers. Even the tax system enormously favors the under 75k cohort of earners and the giant corporations but the small business owner pays 44.6% plus State/local/property taxes etc. ending up with a marginal tax rate over 50%. Whatever your view on progressivity, surely one can agree that it is a mess and not a fair system when the burden falls so heavily on one subsection of the population. Currently the higher wage earners and working couples and small business owners are facing the brunt of this system. The public sees that and percieves that the ladders of success available to them are being pulled away.

He just had another dud with Teva recently.

http://m.economictimes.com/markets/stocks/news/infibeam-rises-2-as-fairfax-financial-looks-to-buy-10-12-stake/articleshow/60097207.cms

I think the price is amongst the highest I've seen. It's even higher than the 2.8 BV or so multiple MKL recently paid for State National. And that one came with a lot of synergies and float etc. then the quota share is like the icing on the cake. Prem made it clear that this was a one off and a deal championed by Mr Atthapan who felt like this would help first capital grow their footprint much faster in Asia and beyond than they are currently able to do with Fairfax backing alone. That was I think the impetus for the deal from his perspective. I notice this is for 97.7% of the company, not sure whether Mr Atthapan has a small stake he is retaining or if the 2.3% is part of the employee share ownership or what exactly. If anyone has any insight into it they can share I would appreciate them sharing it. The $900m after tax gain plus the $700m plus from ICICI Lombard that is yet to hit the books should make a meaningful $57 lift to the BV per share which by my calculation goes from $378 to $435 all other things being equal. FC is a crown jewel and Prem was at pains to say this was a one off and done with the initiation of Mr Atthapan who is retaining his roles with both Fairfax Asia and FC. The 25% quota share arrangement offers tremendous flexibility to Fairfax allowing them to utilize their insurance capital more effectively while outsourcing the underwriting to one of their best underwriters in Mr Atthapan's team that has a far larger pond in which to now go fishing(underwriting). I think he has decided to take 1/4th of a much larger cake while receiving an excellent price for the business as well. Thats as close as one gets to having your cake and eating it too. LOL. He stated 1B written premium as if that was a foregone conclusion which leads me to believe Mr Atthapan sees strong growth imminent from this deal. Bear in mind FC is already overcapitalized for the premiums it is currently writing! So this ceding of 25% was something phenomenal to get IMHO. The initially seeded capital to FC in 2002 was $35M USD and the sale price represents a 29% PA compound rate over 15yrs, even the legendary Peter Lynch record was just for 13yrs! It just helps puts Mr Atthapan's underwriting and compounding record in perspective! My one concern as a long term shareholder is that this news will cause a run up in FFH share price and having just significantly diluted ourselves with shares in the $445 range, we may have to pay significantly more to buy them back. Perhaps allied world would turn out to be such a phenomenal home run that my fears are misplaced but I wonder if this couldn't be done in a better way.

They sold 12% of ICICI lombard to Warburg Pincus in May 2017 valuing the whole thing at 203B rupees so that's like $US3.2B right. Now a couple of months later the IPO might value 19% of it at Rs60B or $932M? That values the whole thing at $4.9B right? Did Prem just leave a whole lot of money on the table? https://finance.yahoo.com/news/icici-lombard-files-first-indian-150837598.html

I think this goes back to WEBs stated objective that he wants to make investments for his shareholders rather than off of his shareholders. He has taken this principle quite seriously all through his career and I think by stating this quite openly he considers everyone forewarned. Historically pretty much anyone selling to WEB has come out the loser. In my opinion it also serves to provide us less able practitioners of the valuation art a public service on entry level from the master of the art valuing his own work.

I had wondered how long it would take for him to finally throw in the towel. This last Q of declining revenues was what did it for me. Management has zero credibility left. They have misread the trends and underestimated the new entrants and I fear permanently impaired their competitive position. They have further compounded their woes by weakening their balance sheet with recent stock buybacks and dividend hikes. All of this can only work when you later find the growth and increased profitability. All their financial shenenigans are now coming home to roost.

I think that is a bit extreme. Don't forget to live a little. Life is a journey and it is not just how you finish but how well you averaged it across the whole time that is important. And though money doesn't always get you quality things, sometimes the best things are free, being too frugal can cause you to miss a few experiences and opportunities along the way also. That said I do agree with the general principle that one should try harder earlier to save, and then somewhat take their foot off the accelerator as they get into each decade of life. Since the time compounding effect of that early career dollar is a lot more than one later on in life. Aside from that your earlier accumulated capital starts to augment you more and more so that even with that increased spending you keep moving ahead. Even starting at 50% savings in your 20s and working down by 10% a decade should get you plenty ahead. And who knows sometimes spending on a trip where you meet a strongly positive infuence in your life or gain some useful insight cannot be measured. Sitting at home or in some rural area like a hermit isn't always the best strategy. On a personal level I have never saved more than 1/2 my income, and with that, 2 decades in, I think I am close to being able to generate what I need going forward. I will continue to do what i do for a living becaus it is something I derive immense satisfaction from and I enjoy the company of the people I work with.

When asked aboit ICICI Lombard. He was coy but seemed to suggest that something might be in the works. We have heard rumors about $1B which wouldn't surprise me one bit considering its market position. He also said that he thought fairfax shares were trading below IV and though he didn't give any numbers he said something about we have done share buybacks in the past and you can look back where we have done them etc. This was in response to a Q about share dilution paying for AWH. Something left me wondering if a good part of that $1B might go to reducing share count. Definitely some speculation on my part here but that was the impression I got.

Like many have said. It all depends. Having some flexibility goes a long way in planning. As always, margin of safety is important if making a clean and definite break. I would say with markets where they are and fed monetary policy where it is, that margin of safety needed is heightened. Perhaps 50% more is warranted. What is more, since interest rates work like gravity on investment returns, expecting much more than 2.5%, post tax, post inflation(hidden tax) reliably seems like a tall order for most of us mere mortals. Since I consider 100k as a needed baseline income, i would say something in the 4-5M range should give you that comfort of financial independence. I do not count social security since though I will have contributed much, my view is that means testing is a near certainty within the next decade or so. That will mean that most on this board by definition would have tried and been penalized for having done so. Irrespective of the moral hazard involved, the politics is such that its coming. If they just limit it to UHNW individuals, the savings will be meager, so they will have to get the top 10% or so, I beleive that would mean income over 100k USD a year. Medicare is a joke. Its now a form of corporate entitlement and increasingly dominated by corporate behemoths be they Insurers, PBMs, Pharma, Hospital chains etc. Alas healthcare is a skill and labour intensive service. The end result of marrying the two is inflated costs and less quality care, less provider satisfaction even as flawed "quality metrics" show differently. We the people would all be far better off in a less regulated, freer market with price transparency, but we are a far far way from that. Neither party is genuinely interested in changing this and the irony is that such a freer market is more easily available elsewhere even if the skills and technology is not as yet. Finally moving to the other side of the coin. Spending. One should look to see where they can find "retirement value" and that may not always be the US/Can/Europe. On a recent trip to Puerto Vallarta, Mexico, I realized that there were nearly 60k retirees from predominantly the US and Canada living there. Clearly they were not all stupid. Your needs differ as you age. Medications and health care costs generally were a lot cheaper. The weather was amazing. It is a beautiful place, the people are friendly, they generally work hard and honest help is not hard to come by, there were medical facilities catering to expats and tourists and they even had a Costco and Sams club, Starbucks etc if thats your thing. My assessment was that $40kUSD a year would get me a very high quality of life there(something that might easily cost me double that in the USA, and I do not even live in the most expensive part of the USA). In addition at that age, learning a language, meeting new people, engaging in a different culture etc. can be a very invigorating experience. It is something I would consider.

If munger was on it, it would be an all time classic episode.

Agree. This is a big reset. They may not now be appropriate for all invested. Especially for those that were using fairfax as a hedge in their portfolio. That said it is one of the cheapest diversified insurers around, one with a decent underwriting record one can find. This acquisition does nothing to change that, and arguably cements it(considering fairfax's underwriting record prior to a few years ago). So everything hence rests on the investment prowess or lack thereof. There's a case to be made here that Watsa and co. have lost their marbles on this. They are now 6-7yrs into a woeful investment patch. They have underperformed significantly, hedges and deflation swaps excluded. That's certainly a risk but consider that they have still grown BV despite that woeful performance. If they fire on both underwriting and investments for any length of time, this will turn out to be a very spectacular investment. It's a tough call but definitely an inflection point. And IMHO Mr Market has priced accordingly at current levels. For those with a negative view of the market and looking for a conservatively managed portfolio with decent underwriting and shareholder first management perhaps WTM is a consideration. It also trades barely above BV. They have piles of cash in case of a market/economic meltdown.

This is fine and partly a concern for me as well. That said, a little perspective is in order. Unlike with the hedges and deflation swaps where there was clear downside. Whilst this may not be a spectacular acquisition, it is not at all clear to me that it is a bad one either. AWH has a large US footprint and a very good underwriting record. They mentioned in the conference call that Cardilini and Barnard went to the same school etc. so clearly there is some background in this deal. No one can reasonably argue that Andy Barnard has done a great job with the insurance operations in recent years. AWH portfolio is also not very risky, arguably more conservative than Fairfax's from what I can tell. So far it is only a word that they will be more bullish on US acquisitions going forward. This acquisition does not imply heavy bullishness. I think none of us like the dilution and Prem and co. are working on alternatives and reading the verbal and other queues on the call it sounded like they would keep the dilution to lower than the mentioned 28%.

The risk of course being that they played defense(when they should've been playing offense) and will now play offense when they should be playing defense! The first part of this is now undeniable. The money in the hedges, the deflation swaps etc was all lost. Their long investments have significantly under performed with even a few bankruptcies e.g. Sandridge energy and many others RFP, BBRY, Eurobank, XCO significantly under water. Prem's comment about the deflation swaps like as if they are a foot note now, says all you need to know that he has thrown in the towel on that trade. A major geopolitical even handled badly by Trump next year could make everything slide in reverse in the still fragile, highly leveraged environment.

If you ask Buffett the same question he will tell you a low cost S&P index fund. Most of us could hardly be any better at giving you suggestions, but that won't stop us from opining. That's after all how we ended up on this board ;). My pick is MKL, as they have the guru investor, a solid capital base, a measured approach to risk, conservative leverage, the right culture and a runway long enough for the time frame you proposed.

Everyone is subject to their own biases. He was a big Hillary supporter and one wonders if the election didn't figure into his perception. A lot of business optimism has emerged in the business class which felt besieged by the Obama administration. Could that have contributed to the bump?

With a rising share price from a $436 bottom, I think it's more likely someone is buying it up rather than someone selling it down. But I agree the volume has been very high. Compared to some of their other insurer peers, I do think it is relatively undervalued at ~1.15 BV and the lack of headwind that the hedges represented for the past few years. As an example MKL(which had a far less impressive underwriting quarter) trades at a ~1.4 BV valuation.

I dont think markets do sideways for very long. I dont see anything on here that looks flat: http://www.macrotrends.net/2324/sp-500-historical-chart-data I think rb nailed it. Add to that is the fsct that a single party controls all 3branches of gov't and can therefore claim a mandate to make meaningful chnages and actually get something done, and you can explain the optimism. That said there are a lot of unknowns, how effective will trump be, how will he govern, what geopolitical instability might he stoke etc. etc. however at this time mr market is liking the single party control and very high likelihood of a large fiscal stimulus and tax reform. I don't think it is mich more complicated than that.

Yet, if he had bought MSFT when he took his IBM stake, he'd have a double on his hands unlike IBM which has thus fsr been a dud.

If that was the plan however, wouldn't it have made sense to initiate the position earloer this uear when it was trading in the low teens? Its nit like they were hurting for cash at any time in recent memory.

Yes but in the past both have traded above 2x BV. Just not recently. Arguably those days are over for both as their size has grown, but with both companies buying up whole businesses as subsidiaries and probably having decades long investment runways with management fully alligned with shareholders, surely 1.5x BV is not a stretch in this arguably fully valued market. Especially as they both are with solid insurance/underwriting franchises. In general financials have not traded at healthy multiples of BV since the financial crisis.

Luckyone, I too have a sizable long position, but surely that shouldn't prevent one from taking an objective look at the investment profile! These things tend to be quite volatile and Mr Watsa repeats every quarter both good and bad that you can only make sense of the results in the long run. That of course doesn't prevent Mr Market from his manic depressive ways. We should attempt not to be similarly labile in mood. Good luck. ;) FWIW, I think relative to the market, this is a decent buy, and a solid defensive position.

Conaccord took this Q eps down from $12 to -$10 recently. My base case is that the results come in perhaps even worse than that, at perhaps -$20, since the 10yr t bills yields are up around a quarter point since the last quarter, and they have to mark their sizeable bond portfolio to market every quarter, and their hedges have likely gone sideways as equity markets have been range bound, and I'm anticipating no underwriting profits, as cat losses(western canada fires and recent hurricane losses) wipe out their recently consistent underwriting profits. Their equity holding haven't done particularly well either, but of course with such a diverse portfolio, you never know if they mark to market certain gains etc Quess to offset the losses. Absent the last point, we are likely looking at this dropping a bit further after the results this thursday.

Of course it would be better for all including the overall economy if it were simplified. Lest we remind you that Simpson Bowles came up with precisely that as a recommendation. Mr Obama quietly ignored it. He was never Ok with a revenue neutral tax plan as much as he pretends to blame the house republicans, he was the one who refused to take it forward. He demanded an increase in taxes and wanted them further tilted towards the upper income brackets. Never mind the already high nearly 44% percent marginal federal rate paid at this time. Add in state and local taxes and high income earners already are at roughly half on their marginal rates. Contrast that with a sub 20% for the lower income crowd, tax rebates as EITC at the very lowest levels, and the now near 24 percent for the income on capital crowd, divis/LT cap gains. Whats more corporate taxes paid are averaging lower that even that. Why is highly valued work paying such a high rate? Whereas capital and low end labour being treated so kindly? I will tell you why, one has votes and the other has lobbying clout. High income earners get taxation without representation. Remember the total tax take is around 20 percent of GDP. Anyone paying more is the victim of this unfair system and anyone paying less is the beneficiary. Anyone can look at their returns and figure it out for themselves. High income earners averaging 40+% are the ones getting reamed out. Buffett probably never paid anything close ever in his lifetime. Its a bit rich of him telling those paying half their income to pony up more. Don't you all agree?

The level pf hypocrisy is stunning yes. Alas what's worse is the public's gullibility on this topic. One just wonders if it hasn't just degenerated to a gimme mentality for the majority of voters, like Romney said in that leaked tape. If so we as a country are not as far removed from banana republic status as we would all like to believe.