Uccmal

Nwoodman, Back at you re: appreciate your thoughts and Giofranchi's as well. I dont make any claim to seeing this quarter coming. I have been slowly selling FFH for years as the underlying investment business has deteriorated. BKIR is fully valued, imo. I ran the numbers when they first bought, and got 0.30 cents per share upside, if everything returned to normal. So, they have made that money. Resolute leaves me unimpressed. The equity hedges have been a disaster.... I dont know why they didn't collar these somehow, but they didn't. BBRY was truly the final kicker. I sold all my BBRY by the end of 2011. If I could figure out it was done for why couldn't FFH? I am sure that there will be a market drop at some point that will show me wrong, at which point FFh will realize some gains on the remaining hedges. However, it is unlikely these will yield all that much. As others have noted, if things go south that badly, there will be better deals to be had than FFh at that time. In terms of insurance, I dont see an real evidence of a hard market. If anything, these few quiet cat seasons are going to cause the opposite. The jury is still out here. So, it is really FFHs underlying investment business that bothers me. They have had ample opportunity to buy really good businesses, a al Buffett. They just dont. They seem to be caught in a nether world between Graham and Buffett. They are using Ben Graham asset based principles for huge positions. Buffett makes sure the businesses he buys are immediately accretive to cash flow. He then uses the cash flow as his hedge against a market correction. I am sure it is not this simple, but the first thing I would do if I were in charge would be to buy cash generating businesses with a lesser cyclical component. But thats me. I could be very wrong as well.

I cannot agree. --John Maynard Keynes I myself have written a few days ago that a correction of the stock price was very likely. Yet, I also said I haven’t sold a single share. Because long-term prospects for FFH are better today than they were yesterday: underwriting performance is really starting to provide better than free float! That’s what a long-term investor and an entrepreneur should be focused on. As far as valuation is concerned, ask Mr. Tom Gayner what he thinks MKL is worth, based on its long-term business prospects: he will answer in between 1.7 and 2 x BVPS. The same imo applies to FFH. Now, FFH yesterday closed at $436, and its BVPS is $334: it is selling for 1.3 x BVPS. Furthermore, and this is very important, today’s BVPS for FFH is very conservative: after remaining flat for 3 years, now we have this quarter in which the Russell2000 increased 10%… and the following drop in BVPS for FFH. (Think of it: 10% in 3 months… not from a deeply undervalued company, but from a whole market index, that four months ago already was way overvalued! Talk about stock market bubble…!). So, not only FFH is clearly not overvalued, it is not even fairly valued… instead, it is still undervalued. Of course, this is true, only if you consider its long-term business prospects. Instead, if you are able to jump in and out of FFH, like many on the board seem able to do, very good for you! You have foreseen correctly this terrible quarter and will be able to take advantage of the big drop, when the market opens today! Simply put: it is just not my game. :) giofranchi Macro Investing now Gio? What evidence do you have that the Russell 2000 is overvalued? In general this was a dismal quarter for FFH. As mentioned above underwriting results were okay, in The absence of any significant cat losses. One event and you would have seen losses for the quarter closing on a billion dollars. Those hits to book value were real, not unrealized. 8% is not an insignificant drop, in one quarter, no less. To increase book value back up you now need a 16% gain from somewhere else. I am generally a medium/long term investor. I have been in BAc for 3 plus years, and SSW for 5 years, and was in FFh for 15 years (still hold a tiny number of shares). I simply dont see FFh being able to get their mojo back in the foreseeable future. The FFh team is great, but this is business, not a marriage. I even sold 50% of my holdings from my kids RESP, which I wont need to access for 9 years. That is: I dont believe their returns will be as good as those of my other holdings over a 9 year period. Alot of people here make too many excuses for FFH. Now, I await Sanjeev's rebuttal.

Yes. Virtually sold out. Fair value to rich imo.

Travellers just released stellar earnings... Explains Aig

Thanks for the clarification. That also explains the insider buying.

This is an interesting article in this months Canadian Business Mag. About second cup expanding into areas where America is a bad word: Pakistan for example http://www.canadianbusiness.com/companies-and-industries/a-second-chance-for-second-cup/

Agreed Packer I dont know about that. Since the financial crisis we have had JPM get hammered down by the Whale, BP get killed by the gulf leak. These are only two examples I can think of in 5 minutes. Buffett bought General Dynamics stock in the 90s when war was never going to happen again. These seem to happen frequently, though perhaps not predictably, in the absence of a "global" meltdown. I am not saying that these bargains are not available all the time just that for large caps you need to be more careful because your competition is much higher. For every JPM and BP there are Dells and HPs. Smart value investors have invested in both it is just harder to outperfrom with large cos. What advantage do any of us have over sellers of JPM, BP, Dell or HP versus the advantage we can have over sellers of Saga Communication, Salem Communications, Lin TV or Alliance Healthcare or even in the extreme some of the microcaps mentioned here. As to Buffet, I think he tries to leap the 1 foot fence before the 10 foot one but as his assets have gotten larger the fence has gotten higher so he has had no choice. In my mind these smaller situations are lower fences because the competition is less. Packer I dont really have any disagreement with this. Funny, as I wrote the above I was thinking of The HP disaster, and how difficult it really is to see quality..The greater trick is to identify decent companies not in secular decline these days. As BG2008 mentioned above, in that great post, identifying quality is easier when reverse engineered.

Agreed Packer I dont know about that. Since the financial crisis we have had JPM get hammered down by the Whale, BP get killed by the gulf leak. These are only two examples I can think of in 5 minutes. Buffett bought General Dynamics stock in the 90s when war was never going to happen again. These seem to happen frequently, though perhaps not predictably, in the absence of a "global" meltdown.

No hurry right now. I want to see lower prices.

+1...fully agree! Cheers! So does special situations include GE, Goldman Sachs, and Bac convertibles. How about great companies at fire sale prices?

I'll second that if your a US resident.

Jimi - honorary of course.

Best Drummer: Obviously Neil Peart Best Guitarist: Jimi, Living: Alex Lifeson; Best Songwriter: Neil Young All Canadian Line-up. Only a loser would disagree.

+1 just wait until the next downturn.... Not alot of people were buying JPM in the low 30's, BAc sub $10, WFC below $30, Aig below $30.(all within the last year). Adaptation of the philosophy is necessary to reflect the times, where "hard" assets are less relevant. Good businesses will always go through times of trouble. I guess our job is to determine if the value of a business still exists on an ongoing basis. This an be as simple as driving around and checking out bank branches or the lineups at Starbucks, after reviewing their finances, of course.

I actually think he was probably an average father for the times. Busy, but I expect he is pretty even tempered, which goes along way, in my mind. 50% + of marriages end in divorce. Buffett's marriage broke down because his wife grew out of the role she was in. She was married at 19 in the early 50s - anyone watch MAd Men. The fact she didn't just sue him for support, but set him up with a girl friend, and continued to participate in his public life, speaks volumes about him as a person. We cannot control the actions of others, and cannot predict how people will grow and change. A close friend on mine's quiet housewife mother stayed at home until his younger brother moved out the door, and within weeks had taken up with the husband of their closest friends. His father, a decent person was furious and baffled. Happens to good people all the time.

Yeah, thats one reason I am not in a hurry to pay it down.

Mikeenhe, Thanks for the awesome story. I was essentially broke in 1997', and semi-employed. Now I am a millionaire, after the mortgage is paid. I did all that without excessive compromise on my desire to do some exotic but not expensive travel along the way. Once I leave my job in April, I am going to tell anyone who asks that I am a businessman, which I am. Thanks for the comments Paul, Shalab, Sanj.

Isn't the question somewhat contingent on both the housing markets and the stock markets? We did a large addition to our house about 3 yrs. ago, increasing its value by at least the amount spent. We took out a HELOC at the time in addition to a mortgage we still hold. I recently paid a large chunk of the Line of credit down. The reason for this is an overall derisking process. I will be leaving my job within 6 months, probably permanently, although via an unpaid leave at first. I am also finding less really compelling values in the markets. I am trying to wring as much as I can out of existing ideas. This has been a recent shift. When things were cheaper I felt less nervous about market risk. I am running the least leverage I have ever used, since I have been a homeowner - 10 yrs next week, including the mortgage and HELOC. With these multi-generationally low mortgage rates my principal is getting smaller on the mortgage by $1000 every six weeks. Depending on what I can get a 5 yr. mortgage for in two yrs. when it comes up, I will decide then whether to pay the mortgage off completely, increase it somewhat, or do nothing of significance. I guess there is a magic interest rate in there somewhere at which debt repayment makes more sense than buying low quality value stocks. Probably somewhere above 6%. In Canada, I can write off the Heloc against my investments, but not the mortgage, contingent on interest rates, that may be the way to go. The way I see it, one can also borrow against a home when the markets tank. Mind you as Eric has discovered the banks want your first born as collateral if you dont have job,,regardless of passive income. I should probably get the HELOC limit increased while I can.

Good one. This board has really degenerated. The ad below the messages was offering me the profiles of 10000 Asian women to browse. Just not enough days in a lifetime. ....

The greater question is what makes a brand. Tim Hortons, or Starbucks, as examples: TH started as a single coffee shop in Hamilton Ontario around 45, maybe closer to 50'years ago. They built slowly at first. They provided a place to sit, as per Kravens comment, a place to have a smoke, (those were the days), a take out option. From the very beginning they developed a franchise system that had ingrained quality control. These days franchisees must pony up with 100% cash to buy an outlet, and go through extensive training, so no outlets are left wanting. As they started to expand the advertising was nothing short of brilliant. All Canadians are familiar with Roll up the Rim to Win. THs big expansion period was in the mid to late 90s and has continued at a controlled pace since then. Somewhere along the way they added food, soup, etc, making their outlets all day events. So what made them different and better: 1) First to do take out coffee 2) first to drive through coffee 3) First to refine soup and sandwich combos. And on and on and on. The expansion is continuing into Toronto, having only started 12 or so years ago. Along the way they tried other things but quickly abandoned them if they didn't work. So what makes it work: 1) Consistency and quality 2) First mover, over and over again. Constant reinvention. 3) At a certain point ubiquity kicks in. 4) Customer comfort, speed of service, general competence of staff. 5) Total buy- in by fanchisees. An interesting other effect is that THI closes unsuccessful outlets and immediately disappears them. When Burger King was in trouble places with the signs partly blanked out appeared all over because the chain had cut franchisees loose, and the quality of these places deteriorated. I have watched first hand for 35 years as TH has grown, and would not want to be Dunkin Donuts in a border state. THI is shooting down the interstates that Canadians travel, and bringing in Americans with it. Sbux story seems very similar. You have the constant reinvention, great service, decent product, comfortable locations, and ubiquity. The products are different from THI but the key aspects are identical. The only operational difference is that Sbux stores are wholly owned. Another thing about both chains is their ability to raise prices when needed. They inform their customers in advance and uniformly raise the prices. And what happens: The competition, rather than trying to price war them, sees an opportunity and raises prices in lock step. I dont know how to sum this up except to say perfect execution with a bit of luck, and first mover advantage. Edit to add: Tim Hortons has a nation wide hockey league, soccer leagues etc. Not just teams but leagues. Perpetual free advertising and goodwill via tax writeoffs.

Of course Kraven, you know who owns Seattle's best?

I am really wishing the 2016 Leaps for Aig and Bac were out right now. Things are looking more buyable, but I dont like the tight time frames to January 2015 so much.

Keep at it, they will come. I did the same thing with Rimm which is headquartered 30 miles away. Went as far as selling puts, which I had to buy back.... dumb, dumb, dumb. And you know my inner voice kept telling me this probably wasn't the best idea. But did I listen no, no, no. But I was sold out by the time FFh joined the fray and really pushed the stock down. As a result 2011 was my only down year in the past 10. Others: there are so many - Caribou resources - the CEO, bless her soul was buying until the day before they filed for bankruptcy - evidently she thought the reserves were real too. That ended using insider buying as a signal. FBK/sfk - cyclical in flux and held by FFH - stay away from anything controlled by FFh that is not an insurance sub. i.e. I did well on Northbridge and really well on ORH. Lindsey Morden Cunningham , whatever it was called. Another FFH sub. An adjuster company. It ruined a few careers in the FFH stable. These days, if FFh invests in something In a potential control situation I stay away. Better to invest in the mother ship. And then there was the "thats a good technological idea" collection, in alt power, card readers, and an assortment of others Things I no longer do as a result of my learnings: (I post this as much to remind myself as to feed the thread) 1) Invest in o&g exploration firms. For all the bugger ups out there it is just easier to buy XOM. 2) Invest where the technology is unpredictable out more than a year or two. 3) Invest in things in secular decline (pulp and paper/newsprint comes to mind right now) 4) Invest in great ideas - If an idea is really great you can guarantee GE will get into it and they pay a dividend. 5) Invest in things where I cant get a reasonable handle on the inputs and outputs. The antithesis of this is a well run bank where the input is money, and the output is generally more money. Same with insurance. 6) Keep it simple. Need some cash flow, buy a dividend paying stock instead of gambling by selling puts. When I analyze all the screw ups I realize that they can be summed up as things Warren would not buy. Most of the holdings of Berk. show me where to invest. With a couple of glaring exceptions (BYD) Berk. buys companies that are generating cash when he buys them. Funny thing is I have never invested in mining. I ascribe to the axiom that a mining company is a hole in the ground with a liar on top. Something to do with starting my career when Bre-x was unfolding.

About 5% to my AIG leaps. This selloff it turning into a disappointment.

I only calculate my results at year end. End amount + withdrawals during the year- Start amount. I pay taxes straight out of the brokerage account. So my results are after tax which doesn't equate to mutual funds or indexes which are pretax. However, about 20% of my holdings are tax sheltered, so it may equal out. As to specific investments results the analysis comes in March when I do the taxes. It shows in stark relief what worked and what didn't. I no longer put cash into the accounts. Any movement between accounts is captured in the aggregate number.