treasurehunt

According to Geoff's analysis, US Bancorp is in Buffett's portfolio (as well as in Simpson's). Also, Buffett has spoken positively about USB; he thinks it's a pretty good bank.

I saw the following in the proxy filed by BH (I have bolded the sentence that concerns me): The Governance, Compensation and Nominating Committee (the “Committee”), which consists entirely of outside, non-employee directors of the Corporation, has approved, subject to shareholder approval, and recommends to our shareholders the approval of the Incentive Bonus Agreement attached to this proxy statement as Annex A (the “Incentive Agreement”). We are asking shareholders to approve the Incentive Agreement only for the purpose of complying with Section 162(m) of the Internal Revenue Code of 1986, as amended (“Section 162(m)”). Sanctioning the Incentive Agreement will enable the Company to preserve the tax deductibility of the compensation payable under the Incentive Agreement. This paragraph makes it sound like the incentive bonus agreement will be in place whether or not shareholders vote in favor. If the vote goes against the agreement, shareholders will get insult added to injury in the form of BH not getting tax deductibility for the compensation. Please tell me I am wrong -- I feel like I am in a bad horror movie here. :-)

The warrants now trade on the NYSE under the ticker WFCWS. You should be able to buy them through any discount brokerage. I bought some in the $8.60 range. Might be just in time for the Greek debt problem to blow up all financials. :)

Paul Samuelson. This 1998 article from Forbes mentions that Samuelson is an investor in Berkshire: http://www.forbes.com/forbes/1998/1012/6208110a_print.html

Okay. That looks definitive. The warrants are still pretty attractive if you think the stock is undervalued. Let's assume that JPM restores its dividend to 38c next quarter and maintains it from then on. Ignoring the time value of the dividends, I calculate that the break-even point between stock and warrants is a stock price of $71 or so in Oct 2018. Here's the calculation based on yesterday's prices: Exercise price of warrant: $42.42 Price of warrant: $13.17 Total return on warrant if the stock price is $71 in Oct 2018: ($71 - $42.42) / $13.17 - 1 = 117% Price of stock: $38.87 Dividends from now till Oct 2018: .38 * 4 * 8.5 = $12.92 Total return on stock if the stock price is $71 in Oct 2018: ($71 + $12.92) / $38.87 - 1 = 116% For the stock to be at $71 in Oct 2018, it would have to go up by about 7.5% per year. So if you think the stock will rise by more than 7.5% per year, the warrants are a better buy. Of course the warrants are riskier as well.

Have any of you been looking at investing in the warrants issued by banks as part of TARP repayment? For example, JP Morgan's warrants trade on the NYSE under the ticker JPMWS. I think WFC and BAC warrants should be getting auctioned in the next few months. The JPM warrants have a $42.42 exercise price, expire in Oct 2018 and are currently trading at $13.18. JPM is too complex for me, but if you think the company will do reasonably well over the next nine years, the warrants could give much higher returns than the stock itself. I think one key factor is whether the exercise price gets adjusted for quarterly dividend distributions. The verbiage in the prospectus was too confusing for me to figure this out. Does anybody here know the answer? Here are some relevant excerpts from the section titled "Adjustments to the Warrants": In the case of cash dividends or other distributions. If we fix a record date for making a distribution to all holders of our common stock of securities, evidences of indebtedness, assets, cash, rights or warrants (excluding ordinary cash dividends (as defined below), dividends of our common stock and other dividends or distributions referred to in the preceding bullet point), the exercise price in effect prior to such record date will be reduced immediately thereafter to the price determined by multiplying the exercise price in effect immediately prior to the reduction by the quotient of (x) the market price (as defined below) of our common stock on the last trading day preceding the first date on which our common stock trades regular way on the principal national securities exchange on which our common stock is listed or admitted to trading without the right to receive such distribution, minus the amount of cash and/or the fair market value of the securities, evidences of indebtedness, assets, rights or warrants to be so distributed in respect of one share of our common stock (such amount and/or fair market value, the “per share fair market value”) divided by (y) such market price on the date specified in clause (x). Any such adjustment will be made successively whenever such a record date is fixed. The number of warrant shares will be increased to the number obtained by multiplying the number of warrant shares deliverable upon exercise of a warrant immediately prior to such adjustment by the quotient of (a) the exercise price in effect immediately prior to the distribution giving rise to this adjustment divided by (b) the new exercise price as determined in accordance with the immediately preceding sentence. In the case of adjustment for a cash dividend that is, or is coincident with, a regular quarterly cash dividend, the per share fair market value would be reduced only by the per share amount of the portion of the cash dividend that would constitute an ordinary cash dividend. If, after the declaration of any such record date, the related distribution is not made, the exercise price and the number of warrant shares then in effect will be readjusted, effective as of the date when our board of directors determines not to make such distribution, to the exercise price and the number of warrant shares that would then be in effect if such record date had not been fixed. “ordinary cash dividends” means a regular quarterly cash dividend on shares of our common stock out of surplus or net profits legally available therefor (determined in accordance with generally accepted accounting principles in effect from time to time). Ordinary cash dividends will not include any cash dividends paid subsequent to October 28, 2008 to the extent the aggregate per share dividends paid on our outstanding common stock in any quarter exceed $0.38, as adjusted for any stock split, stock dividend, reverse stock split, reclassification or similar transaction. The entire prospectus is here if you want to take a look: http://www.sec.gov/Archives/edgar/data/19617/000119312509249391/d424b7.htm

Here are some sites where you can find information on Berkshire and interesting analysis. John Kish's Berkshire intrinisivaluator: http://www.creativeacademics.com/finance/IV.html Ravi Nagarajan's site: http://www.rationalwalk.com/ The Motley Fool Berkshire board: http://boards.fool.com/Messages.asp?bid=101158

pof4520, I hold MCF as well, but it is not a huge position for me. Here are the risks I see: 1) Much of MCF's production is from one reservoir in the Gulf. Operations there could sustain permanent damage as a result of a violent storm. 2) Ken Peak has been selling some stock for estate planning purposes. He shopped the company around last year. I am not sure how MCF will do if Peak retires. 3) Will MCF's partnership with JEX -- the exploration company they work with -- last for a long time? I think JEX would be hard to replace. If the partnership falls through, MCF's value will be diminished.

Some more information on the latest issue of California Build America Bonds: http://www.bloomberg.com/apps/news?pid=20601087&sid=a7hOT3VmX9aY&pos=6 This is 30-year taxable debt that was priced to yield 7.26%. That should provide some nice investment income for Fairfax provided California does not go bust.

According to the report, Advent has about 600 million dollars of investments, the vast majority of which is in short-term US treasury bills. Their investment return for the first half was just 0.46%. Can Fairfax just add the 600 million to its pool of investments without restrictions? If yes, this sounds like a great deal even at a price of 150 million dollars for the whole of Advent (I think Fairfax paid quite a bit less than this).

I might be missing something, but Eric Sprott's argument seems weak. Consider his initial claim: "Each of the debt buyers presented will have to buy three times the debt that they bought last year, by September 2009, in order to balance the accounts of the United States Government." It is very easy to see that this is mathematically false. It is only true that together the debt buyers have to buy about three times as much as they bought last year; each buyer does not have to buy three times the debt they bought last year. For example, since some of these buyers were actually net sellers last year, it is possible for the entire group to buy three times as much if some of the net buyers buy twice as much as they did last year and the sellers sell a little less this year. Maybe Sprott thinks even this is impossible, but his analysis certainly focused on whether each net buyer could buy three times as much as last year, which is misleading. Also, Sprott says that Foreign and International Holders are on pace to buy 465*2 = 930 billion of US debt this year compared to 564 billion last year. He concludes the article by saying "Bond investors are running for the exits...". I guess someone forgot to send the memo to foreign and international holders. Sprott may well be right that the US is in deep trouble, but this article sure didn't convince me.

There are other differences as well. For one, Berkshire's non-insurance subsidiaries are a substantial part of the company and these are worth a lot more than book value. Second, I believe Berkshire's insurance operations are superior to Fairfax's. But offsetting this, I think Fairfax has an advantage on the investment side; sounds strange to say given that Buffett is in charge of Berkshire's investments, but Fairfax does not have to deal with size as an anchor yet. It's hard to compare book multiples for the two companies though.

zarley, You are right. I was mistaken about the terms of the Swiss Re, DOW and USG deals. The convertibility is nice, but it certainly is not as nice as getting warrants in addition to the annual interest.

I think you missed some warrants: DOW: $3,000 of warrants at a strike price of $41.32 Swiss Re: roughly $2,700 of warrants at a strike price of about $23 USG: $300 of warrants at a strike price of $11.40 Wrigley: unknown number of warrants at unknown terms By my calculations, Berkshire's warrants are in the money by about $2,300 right now ($1,100 for GS and $1,200 for Swiss Re).

oec2000 says: "Hey, why settle for one when you can have the buffett..." There are plenty of pretenders around who write "Buffet" when they mean "Buffett". You must be a true Buffett cult member to do the opposite: write "buffett" when you meant "buffet"! No offense meant, I just found this funny.

Nice write-up, Mungerville. I am not sure, however, about "book going up almost guaranteed this year", like you said. ORH's combined ratio was 121.3% in 2001 and 117.6% in 2005. I think a big disaster in 2009 that drives up the combined ratio over 115% will be tough to overcome on the investment side. Perhaps you are considering disasters such as 9/11 and Katrina to be very rare, and almost guaranteed not to occur. I don't feel so sanguine myself. I do like ORH a lot as a long-term investment though.