Uccmal

I am just not seeing the pessimism that Watsa sees. There are always frothy areas in the market. What I see is a banking system in the Us that is now over capitalized. Many multinationals are sitting on colossal amounts of cash. The commodity rally is over, and has been for a couple of years at least, excluding fossil fuels. Governments are sitting on huge debts, but the service cost is very low. Since they control the service costs it is not that relevant. With job improvements, market improvements, and dividend increases everywhere tax revenues are climbing. The notion that there are no more bullets if things turn down is wrong. The federal reserve has already freed up 20 b per month in bullets - 240 b per year. As to China. If there is really an overbuild still going on then why are commodities so cheap? IMO their economy is internalizing as people within become more able consumers. All that pollution is coming from somewhere. As Packer has stated there is always a crisis somewhere. Since 1999 I have gone from zero to unemployed through the tech meltdown, two massive hurricane seasons, 9/11, the financial meltdown, the Near collapse of the EU etc,etc, etc. Finally, when calculating FFHs long term returns you need to remove the first year, at least. That shaves at least a couple percent off. In the end game, their returns, while respectable, are nowhere near Berkshires. And berks cash build has to do with their size and nothing else.

I get a lot of questions from people around regarding what I actually do, and I feel like I get a lot of disapprovement. I would much appreciate thoughts from fellow investors how to cope with this, and also how to cope with the potential for procastrination when you got all this time to do whatever you like. People are funny. They dont bat an eye over a pro athlete, or golfer, or musician, or chess player. But a pro investor... oh, no. My wife even worries about what people will think. I personally dont care, and will probably end up adding more value to society as an "investor", rather than as a salariman. It is after all, my ability to ignore the good opinion of others that has led to my success at value investing. Jim Rogers of Soros' fame, always tells people he is unemployed. I expect he is busier than nearly anyone I have ever met for being unemployed. And he wears rude suits and obnoxious bow ties.

I am in the process of doing this right now. I am not sure about the idea of investing full time - this may be hazardous to my wealth. But the rest is in place. I am starting a one year leave from work at the start of April. I recall Eric did something like this at the start. The house is 80-85 % paid. If BAc and AIg continue to come to value I will pay the remainder and eat the early payment fees. The house is in Toronto. We could easily sell and live anywhere else in Canada for much cheaper, except BC. I am pulling about 32 k per year in dividends. My portion of living expenses is roughly 60 k including the mortgage. My Wife has a good job she likes that pays well. The kicker is the taxes. I will make about 30 - 35 k from my job this year after paying income tax on my salary, and my capital gains. Working for a pay check is a bit of a mugs game at a certain point. Anyway my drawdown may be as high as 40 k per year which gives me 5 years on the HEloc. Other: I am using an untapped HELOC for yearly financing: 220 k. During down years I will use the Heloc, and pay it back in up years. I expect the dividend number to rise as I add dividend stocks, and stocks increase their dividends. Just converting warrants and Leaps on the major US banks should provide the difference. Interest rates are also an interesting thing. If they were to spike at the long end I could pull much more income without much risk. Of course that is usually accompanied by inflation. I also have a pension fund, that I dont use in my calculations, with my employer that I plan to leave there. It is held by an outside trust. I cant access it for 11 years. I am also fairly talented so I figure I could make money doing an assortment of things. Plying my day trade on a consulting basis I could bring in 1000 per day, inconsistently mind you. I am going to spend the next year or two trying different projects, travelling, and learning some new things.

Uhm, Why would you do this? If your still working put the money you would have put into the house into investments, or dare I say, spend it on frivolous vacations and a beach front property Now if you are intent on proceeding please contact Crip. I have known him for 10 years and will vouch for him. Of course someone will have to vouch for me vouching for Crip....

The voice of sanity. Any response has to be coordinated. The British, and EU countries are more than capable of responding to Russia when they are ready. This is another wholesale mess bought to us by the geopolitics and greed of fossil fuels. Putin is trying to stay in power and using the well worn strategy of attacking a non-existent threat to gain traction at home. Right out of the George W./Dick Cheney playbook.

SD, You reap what you sow :-) Thats a good point about the pipelines, and sabotage. It also strikes me this is an Eu issue, more than a US issue, and always has been.

Packer, not to mention.... Iraq, Afganistan, the Balkans... etc. etc etc. I would think that an approval of the Keystone Pipeline should be forthcoming. Nothing like energy security is there? al

We should only discuss that in a thread about Religion. I am glad my mom didn't have an abortion 49 years ago...... Undoubtedly you think that, but is she glad? (It's the woman's choice after all, not the baby's). Also, while you think that you are happy that she did not have an abortion, I guarantee you that if she had you would not care either way today. Nor would you care either way today if someone had murdered you yesterday. :) Shheesh, you guys are deep.

I guess JPM will leak their results on or about March 17th....

We should only discuss that in a thread about Religion. I am glad my mom didn't have an abortion 49 years ago......

You want to take a look at what happened to FFH in 2008. I love the company and management, but as they are currently positioned, I find it hard to justify owning the stock. If the market goes down, FFH will certainly go down in the short term. If the market goes up, FFH will decline in value. I would rather own cash that is earmarked for FFH and buy it once the market declines . . . if the market doesn't decline, I would rather hold cash than FFH. That makes perfect sense to me. In a market decline a certain portion of FFHs shareholders will get forced to sell, the same as they (me) were in March 2009. However, I didn't redeploy in Fairfax since other, better opportunities were vastly cheaper. SBUX, GE, AXP etc.

Sd, I agree wholeheartedly. Enough excuses already. I hope some of these shareholders will ask some hard questions this year, and not accept fluff for answers. Years are being lost here.

Yours Truly, I have more or less done that for years. We financed a major home reno from a Heloc, and other life related items rather than increasing the mortgage. Then I deduct the interest against investment gains. After the market run up the Heloc is empty, and I am paying whatever advances the bank allows me on the mortgage each year. If there is a major market downturn I can borrow the money back instantly to invest. Of note: we got the Heloc in winter 2010, a year after the meltdown. The drawback is the flexible interest rates (its 3.75%) but it looks like the BofCan wont raise rates until the Fed does, and judging by the "disinflation" numbers that isn't happening soon. From what I understand, if you use your HELOC to invest, you cannot use it at the same time for other stuff like home reno. Or I should say, you can do that, but you won't be allowed to deduct your interest. You can deduct interest only if your HELOC is use as an investment vehicle only. Am I right on this? You can only deduct the portion of the interest used for investments. So if you have a 100k heloc and 50k is stocks and 50k is a new kitchen, you can only deduct interest on half. The proportion holds for the life of the loan too, so you can't pay back 50k and then start deducting it all. I assume the Uccmal actually sold investments to pay for the renos, then borrowed money on the HELOC to buy new investments, thus making the interest tax deductible. Interest on debt for home renos isn't tax deductible in Canada, whether borrowed on a heloc or any other way. That is correct. It sounds completely perverse but that is the way the system works.

Yours Truly, I have more or less done that for years. We financed a major home reno from a Heloc, and other life related items rather than increasing the mortgage. Then I deduct the interest against investment gains. After the market run up the Heloc is empty, and I am paying whatever advances the bank allows me on the mortgage each year. If there is a major market downturn I can borrow the money back instantly to invest. Of note: we got the Heloc in winter 2010, a year after the meltdown. The drawback is the flexible interest rates (its 3.75%) but it looks like the BofCan wont raise rates until the Fed does, and judging by the "disinflation" numbers that isn't happening soon.

I'm 37 years old, have a 30-year-fixed mortage, & I think we're (my wife & I) taxed at either 25% or 28%. As far as investing ability, I've done well over the last 6 or so years (although I started with a relatively small amount of investable cash), but it's been a great run for the market. I'm not naive enough to think that I can guarantee I can continue to produce great returns every year going forward. I think you sort of answered your original question. As the market matures re-investing becomes more difficult. I have watched my stock portfolio drop by around 70% in Feb/March 2009. Even since then I have taken hits of greater than 20% (the peril of options). Each time I have kicked myself for not paying down real debt when things were up. I guess it goes back to know thyself. Since I know I will be upset for not paying off the debt the next time the market tanks, that is probably what I should do. On the other hand there is alot of merit to keeping a tax deductible loan as cheap as that. Our situations are somewhat different. I am leaving the day job, and want to reduce regular outlays as low as possible. Our mortgages can only be locked in for 5 years, and are not tax deductible, whereas a HELOC is tax deductible.

I agree with your logic but not where it is taking you. There are several assumptions in your statement: 1) That the investment someone chooses will equal the stock returns. They often dont. 2) That the person doesn't get spooked out of their investment at the wrong time. They often do. 3) That they have a mortgage that cheap for 30 years. Most don't and will face a readjustment at an inopportune time when interest rates are double digit. 4) That the person buys stocks throughout the cycle, not just at the top of the market. 5) That the person buys a properly run ETF via dollar cost averaging and never gets spooked. The majority of people cannot adequately describe what a stock is, or what a stock market is, but they do understand their mortgage payments. I am with Peter Lynch and others on this one. Pay the mortgage first. Unless you have the kind of investing ability of some of the board members here. We just went through a period of huge numbers of people using their homes as cash machines and look where it ended up. I don't know where DCg stands in terms of tax rates, age, mortgage ability, or investing ability; the above likely does not apply to him.

DCG, This is a very interesting question. I get asked by friends and my wife's family to invest money for them. These days I am telling everyone to take the excess cash and pay down their mortgage. In your case the question is more ambiguous. I know in the Us that some of your mortgage interest is tax deductible. On the other hand you are paying the mortgage in after tax dollars, so we need to set a bogey of say 7-8 %. Can you beat 7-8% going forward WITHOUT risk to your principle. At some point you will need to renegotiate the mortgage rate, perhaps at even higher rates. Can you beat 12% under the same conditions. Put another way. My 9 year returns are somewhere over 25%, after tax. I am preparing to take 200 k off the table as soon as Bac, AIG approach book value and pay down my mortgage completely. My mortgage is 3.7%. I cant think of anything more satisfying or safer than owning my own house outright. Barring war, civil, or otherwise, in Canada, owning my own home outright is safer than US or Canadian treasuries. This is obviously circumstantial. In 2009, stocks were at multi-generation lows so the risk reward profile was different. These days I am going to have to go way down the quality, and yield curve, to do as well with stocks. That is something I am unwilling to do anymore. I Dont know if that kind of mental model helps clarify your thinking.

Here is the problem: I chose the period 2002 to the end of 2012 which gives the greatest benefit to FFH. Their CAGR is 12.8% over the last 11 years. Above mediocre but not stellar. That period includes bond gains, the huge CDS gains, the gains from H&R etc. The stock price mirrors these returns and the P/b in 2002/2003 is the same as today. I made virtually all of my money from FFh on the Leaps, Northbridge, and ORH, almost none from the common. I see no way that FFH is going to return better than 13% CAGR going forward, for the long term. I have never understood why they didn't protect the equity hedges with upside equity hedges at the time, in case the opposite happened, which it did. They could have bought upside protection at say S&p 500, 1600, for virtually nothing, even 3 years ago. In terms of their large business/stock holdings. In a nasty bear BKIR, BB, and RFP would go to cents on their present day dollar. There is no way that in a recession these three big positions wouldn't get slaughtered. So, while the hedges might come to break even, their holdings would get killed. Similarly, The insurers would get killed, except in a deflation. The Wierd stable of private investments would suffer dramatically. FFh stock would get killed, even though they would likely book huge bond gains. The hedges might generate a billion or two to invest in regained losses. If the status quo continues and the bull market persists (see 1973-74 discussion) with mild corrections we have the losses on the hedges being offset by gains from equities. The insurers break more or less even, as they always have, and bonds do their thing. I just dont see alt of near or long term upside. All that said 13% return is better than mediocre, but hardly stellar.

gio, Your faith is not rational given evidence from the last 12 years or. I will elaborate a little later

I don't think so. The hedges are for providing losses to temper the gains on the the stocks in their portfolio providing gains to temper the losses on the stocks in their portfolio. Potential upside from equities begins after they've dropped the hedges -- until that point, the gains would likely be on the bonds and other things they may have (like potentially the deflation CPI thingies). That was good. Agree about the upside being muted for now. Think about the holdings in the background. In a 40% loss scenario needed to bring the hedges to break even (give or take) BKIR, BB, and RFP are gojng to drop alot more than 40%. I would wager 90% on RFP and BB. add to this: In the last major market drop FFh dropped 1/3 after reporting huge earnings. Agree with Dazel. FFh has the best bond group going.

Their shares are probably overvalued. Nobody has a huge edge in operating ships. The shipping industry is largely about timing the cycles in pricing. The market for newbuilds and old ships is somewhat liquid; I don't think that anybody really gets a really good deal on ships. The assets aren't that difficult to value for those working in the industry. You should probably familiarize yourself with the business model. The shares were issued right at book value.

As per gg, it is situational. Seaspan just had a secondary offering to raise money to buy more ships. We know they are getting a deal on the ships, and will have them working the day they get commissioned, and for 10 years after that. On balance probably most are crappy deals for existing and new investors. Same as most IPOs.

Why can't you buy US leaps in your TFSA? I'm asking because I have BAC leaps in my TFSA with scotia itrade Seems I need to talk with TD about this. Right now the account is set up to block me.

Hi Randomep, This topic has been discussed extensively in and amongst other threads, BAC primarily. I have bought a range of puts ( date and strike) against my BAC leaps to protect my capital gains without taking the actual gain. They are mostly catastrophe insurance, ie. low strike relative to the date bought. I also use fairly short time frames on the puts. The intent is for them to go to zero when I buy them. I bought some AIg puts over the christmas season rather than taking gains at the end of the year to push it off for a year. I actually sold these at a small gain but that's okay. I converted some AIG leaps to common in the new year before they expired pushing off the tax man. I trade within my RRSP. The problem there is that we cant hold options on US stocks so it only makes a little difference. To avoid the tax man long term I have stopped contributing to my RRSP. As it is, with a 15% return over the next 20 years I will have nearly 3 million, which will become fully taxable income at that time. This is the result of the experiences of retirees who are paying alot of taxes. Granitepost on this board first pointed this out to me. RRSPs are a marketing ploy of the investment industry. The TFSA is another matter. I have maxed contributions in this account. I just wish I could buy Leaps in it. But its purpose is as a savings vehicle, not a gambling tool. I use leverage judiciously in my margin accounts. Normally less than 10% debt to debt + equity. The interest costs, such as they are, are tax deductible. I have a few stocks ready to dump to clear the leverage, if need be. I am basically self taught at most of this stuff. I do my own taxes each year from the ground up, looking at sets of transactions. Its tedious but very valuable to see what worked and what didn't work. al

Just dont ask for the vehicle history paperwork, lol. We bought a one year old Hyundai Sante Fe -2010 - It had been a rental - we are near the airport. 20000 km on it - 30% cheaper than new. Best vehicle I have owned so far. I also had a Honda Civic. Bought it used for 15 g, made $400/month on it for 4 years with work, sold it for $2500 - spent abput $1500 in maintenance. Fuel costs are certainly an issue in EU. Absolute worst cars I have owned were GMs - never ever again.