Uccmal

"I think for most people it's been fear ever since the financial crisis and certainly once you add in the early 2000s and the flash crash in 2010. Never underestimate though that drooling greedy monster that resides in most people." I agree with this from Kraven. Gen. pub. greed has only just started.

I would say I am being more prudent. I have reached zero cash for the first time in years, as opposed to carrying margin. Part of this is because I have reached certain financial milestones, and see no reason to carry excess exposure any more, especially with my biggest holdings all closing on short/medium term projections. Inevitable corrections aside, we are still early in this cycle. Coming out of a recession always sees financials rally first, which is in process. Employment is picking up, and the markets, if they are a leading indicator suggest there is much more to come, in Europe and here. But a 30% correction along the way is never off the table. I think we go at least 10 years out before another meltdown the size of 2009 is anywhere in the cards. Buffett seems fairly optimitic. Given he has a handle on virtually every sector of the economy he would know. I think his cash position is the result of not being able to find big enough targets to soak it up. Klarman always carries cash. Francis is probably having trouble deploying cash using his asset based style. I bet he is all in with FFh or Kennedy Wilson on the next Private Equity deal - perhaps NBG. We all know Prem's position. I wouldn't read too much into cash positions.

That's not a fair comparison since the management team cannot control the price that investors pay for the business. If you bought it in 1997 at an overvalued 5x book, when you should have only paid 1.5x book, and you lost money, that would be the investor's own fault. That has nothing to do with the performance of the business. The underlying intrinsic value of the business has increased 4.3x since then. Yes. I have learned how to value invest since then. I think it was around 3x book most of the time back then. It was being priced for infinite fast growth when boom, TIG and C&f came to roost. Without looking it up, I believe they are perpetual until one party buys them out. FFH would have written in a stipulation that they could not be cashed in by the counterparty under certain conditions, such as now. Gio, there is nothing wrong with your position or philosphy. There is nothing wrong with mine. Different ways of looking at the same thing. I still hold a sizable position but have trimmed it by 40% or so the past year and a half. I would be very surprised if FFh does not get taken down in a market rout, by virtue of others having margin calls. It wont be me. I may well be a buyer knowing the safety in their "process".

Hey Gio, I have made money in FFH: by moving in and out, and using the Leaps, Not by buying and holding! That said, I really dont touch the FFh in my tax sheltered accounts including my kids education account. FFh is going to move in fits and starts. During the March 2009 meltdown FFh lost $100/share in a matter of days. My guess is it had nothing to do with FFH, and more to do with margin lending where raising cash became a priority. If, what Prem believes, comes to pass, then FFh stock may well be down $100 from here and sitting on a mountain of gains, simultaneously. Call it "the madness of crowds". My two cents. ;)

These hedges are killing Fairfax's results. The equity hedges are particularly problematic. In this kind of climate, once the US employment situation stabilizes and starts to improve, it creates a virtuous circle. This has always been the case. Check the statistics, if you dont believe me. The US is not going to enter a deep recession for a long time. FFh has been flat out wrong on all counts. Unlike 2008, when things were clearly unravelling, things are nowhere like that now. Did you know, if you bought FFH in 1997 you paid 385 CDN. Adding in 50 or 60 dollars in dividends takes you to 475. With inflation you would have lost around 150 dollars per share. Granted there has been book value compression during that period. The S&P hedges are set around 1060. For these to make money, the S&P needs to drop by 600 points or nearly 40%. We have moved from a secular bear into a secular bull, and these can last for 20 years. Prem has always had trouble admitting his mistakes. Shareholder for 15 years. The only money I have ever made on FFH of significance was the options. I do walk the talk. I have reduced my position over the last two or three months and left it in cash. I can always buy the shares back if/when the market crashes.

Very good thread. Its really nice getting local colour. Looking at depressed preferred shares where the dividend may have been suspended, or not, is there anything coming up in Spain or Italy. I did extremely well with RBS preferreds in a similar situation.

lol; I have been recirculating the same holdings like farts in a spacesuit. Markets go down, I buy a stock of Leaps (bac, jpm, aig), markets go up, I sell them. About 5-7% of my portfolio is churning every couple of weeks right now - quite lucrative really.

No different from P&C insurers, policy holders have the most senior claims. Some types of life products are subject to redemption, but some aren't. In a liquidation this may be true, but there is a difference between picking over the carcass, and running a company into liquidation by withdrawing money. Prem has made his stance very clear multiple times at AGMs over the years. They even sold off the Federated Life division to get rid of the liability. Life Insurers are unloved because many of them are stuck in this rut right now where they have made promises of future returns, based on a higher interest rate environment, higher return environment. I dont know the answer as to what constitues a good price for a life insurer in the current environment. It would certainly require long term patience. I was clearly wrong about Berkshire.

With life insurance the policy holders are the owners, of the assets, ahead of bondholders, and shareholders. Prem worries about a run on the bank occuring with life insurers. He knows whereof he speaks having worked at confederation life, prior to its liquidation. A run can occur when policy holders hear of problems and demand their funds. If your float is tied up in stocks, and long bonds, and now private companies, this can be lethal. Notice that Buffett has no Life companies either. AIG does but its relatively small as compared to the P&C company. Also, Sun Americas business is spread among benefits, life, retirements products etc. Investing Life assets is much more restrictive and requires long term matching with potential liabilities.

This is bad, I didn't have to google this: Big fan - especially, the pre synth stuff. Had a chance to see them at their peak in Hamilton when I was 15 and passed it up. Finally saw them for my 40th birthday, here in TO - awesome live show.

I love it. Apt description.

Eric, now you have done it. ;)

His social responsibility is certainly admirable. It doesn't necessarily make him a good consistent investor, which is what my focus on the thread was. My overall point was/is how few high flyers are able to avoid breaking Rules 1 and 2. I guess it speaks to my focus these days which is to avoid large losses. I am spending alot more time focusing on the avoidance of losses than I used to. Paulson is just an example of what I mean. 2011 was a really bad year for me. At least 25% of my 30 % loss was due to "learning experiences" and has resulted in me having to make 50% returns to get back to where I was, which is easier said than done. It seems easier to focus on avoiding losses first, before aiming for gains. Buffett redux. I dont mind losing temporarily, which is part of the game (BAC), and allows one to average down. What I am certainly trying to avoid is catastrophic losses due to negligence or excessive gambling, such as Sino Forest, outsized gold bets, or in my case declining smartphone companies. :P

Paulsons approach is too much like gambling. He had a big hit with CDS, similar to FFH, and Dr. Burry, and the few others. Ignoring that hindsight is 20/20 it strikes me the CDS was easier to analyze on a fundamental basis. The bets were on underlying companies rather than the economy as a whole. Gold is strictly a hedge against something or other, and therefore a macro bet. Dumping BAC didn't seem to be based on any fundamental analysis. Sino Forest was negligence on the part of Paulson. It would have cost them a flight and pay checks for a couple of trusted Chinese speakers to check the veracity of Sino's holdings. Berkowitz makes use of experts for all his purchases. The Buffett cash flow machine does serve as a macro play. It is also easily duplicable by others. Buy great companies at cheap prices, let the dividends come in and grow, and repeat.

http://www.bloomberg.com/news/2013-04-15/paulson-gold-bet-loses-almost-1-billion-chart-of-day.html The longer I am in the business of investing the more I gravitate toward Buffett's methods. Paulson has managed to sell Bac ahead of of its run up, buy gold ahead of its run down, on the heels of huge Sino Forest losses. The CD win is looking more and more like luck. Over time so many of these high flyers crash while Buffett keeps on keeping on.

Maybe I didn't phrase that right - Their moats are probably fine. It's the lending standards that get out of whack. Banking is very clearly a cyclical business, including WFC. Every 10 to 15 years the banks underwriting standards and risk control degenerates to the level we saw in California in the early 90s, and them again in 2004-2007. It will almost certainly happen again some day. If you bail at the top of the cycle (probably too early in my case) you can buy them back at steep discounts a couple of years later.

I will add that it is partly situational. Capital gains tax for me may easily equal my annual salary in years going forward, so avoiding it until I leave my job, is important as well. This wasn't an issue until more recently.

You guys are mostly on the money. I have a couple of sell regrets. I bought Leaps in SBux, AXp, and a couple of other companies in March of 2009, at their generational lows. Had I just converted the Leaps rather than selling I would have made more on those two stocks than the others I have bought since. Now, my reasons for selling were likely related to the macro environment at the time, being unstable. SBUX, I bought leaps just under $10 - its a moat. AXP, I bought leaps at the very bottom - the stocks on both are up 5 to 6 fold in 4 years. I am determined to keep some of my deep value moat, or weak moat stocks going forward. I have managed to hold RBS preferreds that are yielding around 16-18% dividend on purchase price. Seaspan is yielding around 12% on pp, so far. Not likely to sell anytime soon. As to BAC, WFC, And JPM, I see these as return to value/ weak moats. I will hold them until the overall market is very clearly frothy, they are bringing in obscene profits, and we are hearing about some sector where ridiculous lending is occurring. That should be an obvious point and is still very far away. Aig I will hold until it is trading on par to other "good" P&C insurers - 1.2-1.3 book at this moment in time, which would be around $80 per share. Its really hard, patient work to develop good positions. I am more hesitant than in the past to trade what I have gotten to know for something I dont know. I am working on the premise it takes me a couple of years to get to really know a company - this is the area where my greatest all time hits have been. My biggest gains have never come from Graham stocks except where Graham and Buffett merge.

I can't remember who it was, but some famous RE guy was asked why he did so well in the 70s and/or 80s. He said it's hard to do poorly when you borrowed at 5% and then had a period of double digit inflation. Wouldn't that be the best time to invest for real estate? If you think inflation is coming shouldn't you borrow now at low single digits and buy an inflationary resistant asset like RE? I guess what you are saying make sense if we are buying in all cash. Strictly speaking, you are hedging by taking on a known amount of fixed rate debt, and paying it back in cheaper dollars down the road. Which is exactly what the governments will do. Buying long dated treasuries is not what one wants to do in an inflationary environment. The problem with real estate, aside from your own home, is that rent control comes into play during an inflation.

I think you have to do it the old fashioned way. Determine the approximate date and go through each and every filing. Tedious.

His big drop seems to be the 2008 crisis and my understanding is that he was big into financial stocks at that time. But weren't many other value investors hit in the same way. From what I gather, people (Miller and other value investors) didn't anticipate liquidity risks which ultimately killed companies like Bear Sterns and took funds like Miller's down. Was he different from other value funds in that regard? I think Uccmal is referring to the fact the Wechler and Combs made it through the crisis without getting killed and that was highlighted when Buffet hired them as examples of the type of people BRK wanted to hire. Hence there are other people available to watch or follow who have records of capital preservation. They were managing partnerships/hedge funds though not mutual funds. Not sure which value mutual fund managers made it through the crisis without getting killed. Berkowitz was %30 down in 2008 but from what I remember he was not holding any of financials that got creamed. I think he really started getting into AIG and BAC in 2010. Lots were wounded. Bill Miller's problem was that he was the high flyer, who didn't check his downside. Prior to Fall 2008 there were lots of indicators of a serious downturn on the way. Fall 2007: Meredith Whitney produced the damning Citigroup report; July 2007: Bear Sterns two hedge funds lost all of their value; Bear Sterns terminates in March 2008; FFh and Buffett were cautious. Miller wasn't. Subsequently, years of outperformance were wiped out in weeks. It was his investors who lost. As usual it was the investors who piled in at the top. It is interesting that Berkowitz did a repeat of the same, to a much lesser degree in 2011. He seems to have learned his lesson very well, and those who have stayed with him will do very well. Didn't Buffett produce a treatise on his requirement for a successor prior to hiring, in which he stated rather explicitly that he was looking for risk adverse individuals, who could identify, or at least be prepared for risks that hadn't even been predicted yet. Buffett is the guy who has priced in the damage a dirty bomb bomb, or a small nuke in a US city would do to his insureres.

BRK has 14% of all Wind energy in the US; Don't know the % of Solar but it is also large. BRK is the front runner and about to break away from the crowd. $100B into S&W over the next decade. If the costs keep coming down, it will be like "just sit there and make money" One of the paradigm shifts that's coming with Wind and Solar is how we think of energy production/transmission/consumption. With solar and wind the day of local production/consumption is coming. No more transmission (atleast over great distances)! Ideally we'll combine wind & solar with (relatively) cheap grid-scale liquid-metal batteries like these where large hydro isn't available to act as a way to store power: Mid-American was mentioned in the SC articles as being one of the major players. Obviously this strategy has WEBs blessing. Re: thinking high technology will save us. If you ask me the tech. required to produce solar is substantially less than oil drilling. And certainly, wind has been around a long time. Re: Easter Island: Alot is unknown about what happened there. I dont think it makes for a good analogy. Larger islands throughout the world did quite fine, such as Hawaii.

I read the Sierra Club magazine. The last issue was on Wind Power, and one of the prior issues was on solar. The price of both has come down dramatically. Like hydro, these two renewables have upfront costs but become extremely cheap to run after installation. I dont know if the Sierra Club articles are available online. Anyway, the degree of adoption of Wind and Solar is so fast in the US that coal plants are being shuttered permanently, and future nuclear usage is done. I dont think any of this bodes well for the alberta tar sands, either. If I were really pressed to make a prediction, I would say the price of oil and gas go nowhere from here, and coal for power production drops off a cliff. Oil is still needed for plastics. Natural gas stays cheap. Nuclear is toast ( not literally :-) ) But, If the last few years have taught us anything, it is that the future is unpredictable.

Miller seems to have lacked an understanding of capital preservation. It is interesting that Buffett has never made this mistake on a large scale. There is alot to be said about avoiding mistakes as part of an overall long term success strategy. Bill Miller failed at this. As a result his long term record got slaughtered. Buffet and Munger have stated that avoiding mistakes has been an integral part of their long term success. Buffett published his requirements for a successor, and one of them was to be able to manage risk, even where is was not easily predictable.

This year, that may not be a bad idea. We have had a huge bull run to this point over the last 9 months or so. I guess my discomfort is rising with the markets. A significant correction would be totally within the norm of a secular bull, or a secular bear, for that matter. But really, who the hell knows.