Txvestor

Isn't this a function of lower returns on capital in general fostered by an extra loose monetary policy? If capital is made abundant, loose and cheap, isn't it to be anticipated that expected forward rates of return go down as that capital works its way through the system competing for the available opportunity set? I do not think the P&C industry is unique in this perspective. Inflated stock markets make forward rates of return low, and this is worse yet if your view of economic growth is mediocre for the next 10yrs. Deflationary pressures are real an certainly won't add to growth projections going forward.

I think Avon could actually be reinvigorated under BRKB ownership. With Cool running maybe? What a train wreck it has been for the past few years though. I'm frankly surprised another approach hasn't been made.

He levered the fund to take a very large position in Berkshire hathaway approaching 60%. I vaguely remember he levered the fund by something in the 30-40% range. This was when berkshire b share was trading in the 70s and 80s barely above book value and occasionally dipping under. That was right around the time when Buffet put a floor on the price by saying he would buyback shares at less than 110% of book value. Ironically even then it lingered right above that 110% for quite a while. He later raised that to 120%. Hard to beleive it was just barely over 2yrs ago. Not very long before the time Buffett disclosed his Prostate Cancer diagnosis if my memory serves me correct. Pabrai made mention of the leverage Mecham used as well in one of the interviews he did recently, implying he would not have taken that risk. It was a calculated risk, in my opinion, as Berkshire was(atleast in retrospect) clearly undervalued at the time, but what if the economy soured? For the last 3yrs that has always been a background possibility. That is why he calls it unconventional. It will likely be a one off. Leverage can certainly spruce up your returns but it can also kill you on the downside. Notwithstanding the bailouts of 2008/9, leverage is not a healthy approach IMHO, even if it means you have to settle for lower returns. Ironically we(the collective market) are more levered than ever and the US gov't is effectively standing behind that leverage, and traders and investors now count on the Fed. and bailouts in a worst case, instead of using valuations as a floor the way value investors have been taught to do. Sad state of affairs overall for people with unlevered cash and those beleiving in free markets and or a pure value oriented mindset. That said it can be argued that even WEB used some leverage over the decades with permanent capital via the insurance float. However there are qualifiers. It is permanent, leverage is limited and structural, and backed by very reliable virtually permanent cash flows of subsidiaries and in the hands of one of the best capital allocators in history. Thats a lot of caveats for us mere mortals when compared to margin.

This is the simplistic way I look at this share issue. A roughly 5% share dilution for an approximately 20% increase in float/investments per share, and based on underwriting results of the past decade an equal or better insurance underwriting operations with a clearly less stellar investment record. In addition to this there are obviously some cross selling/cross investment synergies to be had. In addition there Is a better dispersion of risk and a good geographic fit. Best part is that any minor dilution of BVPS will be more than offset by this share issue which is being done at 1.31 times BV. I think based on that Bloomberg article it is pretty apparent why they had the sudden reversal on the share issue option. I think we can take what they said at face value. With the Greek sword near term hanging over their head, I think it was the most expedient near term option they had to close this deal which they obviously feel is a great one. Though I would have preferred no dilution. I can live with a 5% dilution for what we got in return. In fact I added to my position in today's fall by 5%! Having collected my dividend from earlier this month I spent just around an additional 3% of my holdings.

As value investors say, Price is what you pay, value is what you get. I agree the price is expensive! As long as value builds, i want it to get even more pricey!

This makes more sense. Once you had adjusted for the fair value of their associates, the stock only traded at 1.1x book from what I could calculate back of the envelope. Hardly an expensive price for a company that seems like it will do moderately well no matter what environment. Yeah, makes a lot more sense. Looks like a very nice acquisition to me. Yes he said inexpensive, and that was in response to options to finance the purchase. Implying he does not want to issue shares at these levels to finance this, especially with surplus capital on hand and with unnamed partners who have apparently approached them to get in on the deal as well.

I think the yield on these falls to 2.5% plus the 5-Year Government of Canada bond yield, so a shade under 3% as of now, on Sept 30th, at the discretion of Fairfax. I would suspect they will just roll it over at 3% for another 5 yrs. i think the holder has the option to convert to series H shares, i haven't looked at the terms on those. I suspect the price drop is related to this. That said the drop in price gets your yield back up to 5% and if you are expecting deflation and needing income, i could think of worse places for your cash.

We will only know thw impact of lower oil/gas orices on emoloyment in the coming months. I'm not as convinced that the job market will motor through this. Thw GDP print is on path for lower revisions already. A second observation is that people are saving a disproportionate amount of the savings on gasoline, compared to the past, perhaps this change of behaviour is from being/feeling over indebted? On the supply side, I agree with your assessments, lower input costs, productivity gains, lower credit costs, and even the stronger dollar speak to lower prices. So with demand tepid, and supply abundant, deflation does appear possible.

Agreed, but you've got to say, their underperforance for the past 6mths has been breathtakng. Whats more, the risk of permanent loss of capital on some of their relatively concentrated bets is now increased. Time will tell whether they are right or wrong. If they turn out to be right this could turn out to be a brilliant entry point. So in a way, to enter here you would have to bet on them. I had a small position in HPQ which i recently exited at $38-39 after a pretty rough roller coaster ride, got in at 25, doubled my position at 18, watched it sink further to 12(and couldn't muster the courage to add further, and then all the way back up to 40. There could be a little more for it to run, but I thought the downside risk matched possible upside gains as well. I once heard them say that up to 30 is a no brainer. Their letter sounded like they planned to sell HP, but delayed due to tax deferral reasons and instead bought jan 2015 puts. They may have reduced or sold their HP position since the letter(pure speculation). However they also mentioned that it is selling for less than 10x cash flow. Staples was another one that was heading nowhere for a long time, until an activist shareholder got onboard and started pushing the really hard choices. Again with the real decline in brick and mortar stores, one wonders how sound the business model is going to turn out to be, the saving grace for Staples is their really strong and competitive online presence. It could turn out to be a reasonable investment, but there is a lot of smoke around the transition, and for me it is in the 'too hard' pile. WAC and OCN have been total disasters to date for them. They got into WAC early, but didn't ring the register when it more than doubled for them, reading the letter it sounded to me like they might feel they should have, and now they are back to holding and defending the position, with certainly more regulatory risk in the air. They as much as admitted that investing in OCN was a mistake. For my part, I am not sure how much of this is isolated to OCN and how much is industry practices. One thing is for certain, the selling of MSRs to these secondary servicers has virtually stopped in its tracks. They see it eventually doubling to 2 trillion. We will know in a couple of years, but WAC is either gonna be a 2-3x from here or crash the way OCN is doing. I do have a small position in WAC, but haven't yet mustered the courage to add to it thus far, even after reading all I could find on them. Their holdings in the oil patch, have of course taken a beating like everything else in that space.They claim to have experience in that area, but commodity based investing is a difficult thing, the ground is unsteady, and valuing a business already has so many variables, that we don't need to add anither big one. Over the years, i have found that area hard to predict and invest in. None other than WEB had permanent loss of capital in this arena with COP in 2007/8. One of their recent additions Dundee i find interesting, it crashed literally months after they initiated a position in it in the the mid teens. It now trades around 10. It does have some canadian oil/gas exposure, and real estate exposure but perhaps the selling has been overdone in tis one. But nonetheless, their oil/gas holdings are not going to recover anytime soon, and one always does risk dilution, and the time loss of capital. Their claim is that these companies are more gas centric, and western based, hence more valuable. I'm skeptical. They are full of praise for the WPX ceo, who appears central to their investment thesis. At any rate, the collapse of oil/gas has hurt them bad. I hope for their sake they exited MSFT before its recent results driven pull back. I always felt the optimism over the new CEO was a bit overdone, especially after the tortured decade under Balmer. It almost felt like a relief rally. LOL. FWIW, I do think Nadella is a better CEO, and for sure I doubt he will burn cash the way Balmer's acquisitions turned out to be, but time will tell. With the Cash microsoft brings in predictably Q after Q, you could almost say the capital allocation decisions of the CEO are just as important as his/her role running the company. I would be tempted if it gets to mid 30s again, but I don't really sense any near term catalysts to move this behemoth. Their defense of their Barricks gold position bothers me. This is another company that has not had capital allocation discipline during an upcycle in gold. So much so that they did a multi billion dollar dilutive capital raise last year. Their stock has gone nowhere in over a decade, despite a tripling of the gold price. Their profitability likewise has been average. So with average profitability, an inability to print money after a tripling of your products price within a decade, and poor capital allocation decisions, this is not a good buy in my view. They claim it is an option on central bank induced volatility, whcih makes some sense, but it sure appears to be an expensive option. They claim the new management will do better with cash flows etc. call me skeptical. I've lost enough in miners not to believe anything they say. They always dilute you and at the worst possible times too! If gold makes a new high however, this is a triple from here, but you had better ring the register quickly if you happen to catch that ride. Leucadia and Whitemountain have gone nowhere in recent times, but remain good long term bets IMHO. So all in all, a very rough year mainly due to their commodity exposure, regulatory overhang with WAC/OCN, and ?? Near term peaking of their large tech. bets. What a way they have suffered, with over 20% points of underperformance. They will have a long way to climb back to get out of this underperformance hole and make their 10/15 yr charts look good.

What I've noticed is that Prem does a lot of balancing in his portfolio. If X goes bad then Y will pay off in spades, negating it kind of thing. So take Eurobank. You could make the case that if Greece stays in the Euro and renegotiations with the troika come to a successful resolution, Eurobank will do very well. If on the other hand there is. Grexit, then the possibility of the Eurozone coming apart and significant Euroland deflation is more, and the U.S. treasuries and munis they hold will appreciate significantly, rendering losses on Greece minor. Over the last few years, I've seen some quarters where I believed things would be bad and the BV will go down but it seems like they pull a rabbit out of the hat when results come out. I agree that between his Greek holdings, Sandridge, Exco, IBM, this looks like a lousy quarter, but I'm sure the US treasury holdings, munis, deflation hedges etc are up somewhat to mitigate. Also the insurance operations have been firing on all cylinders lately with impressive combined ratios and reserve releases. So I think all taken together, he will come out fine. The irony is that he predicted the collapse of commodities including oil, and a collapse in China, and I wonder why he maintained his positions in Sandridge and even increased in Exco. Anyway prem is the one with the Buffetesque returns, so I'm sure he has a good answer.