Uccmal

The other thing that bugs me about buy backs versus dividends is when buy backs are announced, and they just end up keeping the share count static as per WFC. These are what I call bad buy backs. I will take the cash in my pocket over managements any day. If you can convince me that BAC wont follow suit, well lets just say good luck to that. My bet is the stock awards start to soak up the buy backs.

That summarizes my position nicely. I want the stock to go up fast, or I wouldn't have bought Leaps. I like to see a company succeed but I have bought all the stock I will ever buy and now I want that share price up. Raising the dividend to 0.50 instead of the buybacks would have pushed the stock above $15.00 quickly, possibly even up to $20.00. Now we wait another year which means another cycle of leaps, and the frictional costs involved. That's the risk with LEAPs...there is always a time arbitrage involved and hell of a lot shorter than the warrants. Do you still hold any common or warrants? Or did you switch it all to LEAPs? Cheers! A mix between all three of course. Actually sold 200 Leap contracts in the last two weeks. Selling while iron was hot. Still hold about 500 Leap contracts. I have been in this game a long time, as you well know, boss. Lots of cash to deploy when there is a pull back.

That summarizes my position nicely. I want the stock to go up fast, or I wouldn't have bought Leaps. I like to see a company succeed but I have bought all the stock I will ever buy and now I want that share price up. Raising the dividend to 0.50 instead of the buybacks would have pushed the stock above $15.00 quickly, possibly even up to $20.00. Now we wait another year which means another cycle of leaps, and the frictional costs involved.

Can someone refresh my memory. Did Citigroup convert preferred shares for common after the bailout? I am obviously thinking about precedence in terms of the S listed NBG prefs.

The buybacks are going to be far more effective than the dividends as far as increasing shareholder value. They actually did the right thing here...buy back shares under book, even tangible book maybe...and retire high interest preferreds. If they just wanted to keep the stock afloat, dividends may have been better. But if they want to permanently increase the value of the shares, then this was the way to go. Also, dividends tie you down to the large institutional shareholders...doesn't matter if loan losses are up, capital levels down...you pay the damn dividend and it's double taxation. You buy back shares and it's permanent...done...more tax efficient and accretive to book and earnings when done right. The Fed cannot cancel your share buyback after it's complete, but they can stop you from paying a dividend. Cheers! Yes, "when done right" is the key here. The only buyback I have seen done right in the last number of years is Seaspan. The list of badly done buy backs far outweighs those done well. SHLD, JPM, Potash corp, are three that immediately come to mind. And Moynihan said there would be more money toward dividends.

What I think they have said with this (both BAC and the fed) is we dont want to be committed to paying a dividend because we are unsure of our capital position. Aftermarket is dropping back as this is realized. Not good. Buying back 5% of shares is meaningless in the greater scheme of things. If it was 20-30 Billion it would be meaningful, but 5 - really? As to the preferred shares, this was going to happen anyway. The prefs dont count toward Basel 3, and my bet is they issue lower cost debt in exchange. Put me down as feeling that this is all smoke and mirrors.

Without that dividend increase the stock price has no support if there is a general market downturn.

I too am very disappointed. I wanted to see a reasonable dividend increase. Share buybacks are too easy to cancel in a moment of trouble. I dont think they have done enough and its going to weigh on the share price for another year. This is going to keep big pension funds out because the dividend doesn't meet thresholds. Not happy at all. 3 billion towards a dividend would have been approved. Moynihan has not done what he stated he would do which was to split the money between buybacks and dividend, or else the fed told them not to ask. Now, we just have the cash piling on the balance sheet. Not a good thing.

This is quite interesting. The only difference is that the Government of Ireland actually took measures to fix the country's problems, while the Greeks seem to be more interested in denying/delaying. Buying into temporary disorder is potentially interesting, but buying into perpetual chaos? Not sure this is the best idea! SJ Greece is certainly not as strong as Ireland. Still this is interesting to study. I remember in 2012 Q4 letter, Dan Leob also pointed out that they bought a ton of Greece national debt and feels bullish about Greece's future. Ireland wasn't as strong as Ireland two years ago. There are preferred shares NBG.pr.a that trade in the US. The dividend is non- cumulative, and suspended. I am going to look at the prospectus when I am flying in two weeks to see if they can issue new prefs before they re-instate the dividend on existing issues. They have also been tendering for prefs that are cumulative. I did very well on RBS preferreds.

giofranchi, That is almost entirely due to the CDS gains. I do not see that happen in a market crash going forward. I am referring to the fact that if Fairfax did not have CDS gains I think it would have declined along with BRK, LUK, etc. I have benefited a lot from Fairfax during that period but I do not expect a repeat performance. Also I think Market would probably give us some time to load up on Fairfax if any deflation hedges look like they would be a home run. Hence, my preference for cash as a hedge instead of Fairfax. I could be wrong but that is the only way I can sleep well with my portfolio. Vinod Well, in 2008 FFH gained $2,080 million from equity hedges and $1,290 million from CDS. So, when the markets really melted down, FFH actually gained more from its defensiveness than from its macro call. :) Anyway, I understand what you mean, and I like your barbell type portfolio! ;) giofranchi Vinod is likely right. FFH was way down in March 2009, giving an excellent time to invest, if one had the cash. This was despite the fact they were booking billions in gains. In a heavy market sell off FFH will drop too, probably not as much as the S&P, but it will drop. This likely has little to do with FFH and more to do with shareholders being forced to sell at disadvantages prices to pay for margin calls. It is only after the dust settles that the gains will bring FFH to new highs. It is not a perfect portfolio hedge with the time lag. The closest thing to a perfect hedge is cash.

Hi Uccmal, I sold FFH at around $420 primarily due to a major portfolio overhaul in 2011. Given all the economic issues in Europe and its potential impact on US, along with US own set of issues and the opportunity set that is available (BAC/AIG/C/GS), I wanted to have a barbell type portfolio. A large allocation of cash (60-75%) coupled with high leverage via warrants and LEAPS on deeply undervalued businesses. I know FFH is hedged but if 2008-2009 crisis taught me anything it is that only cash is truly liquid. So I sold out of FFH. If BAC or AIG works out while FFH is still available around book I would revert back to FFH. I do not see underwriting profits or growth in float making much of difference to growth in book value. Growth will again likely come from portfolio performance but with the hedges in place the macro has to cooperate. Vinod Makes perfect sense to me. In the past I have been too restless to just hold cash. Something I need to really work on getting comfortable with. It would probably be easier if interest rates were 5-6% on cash as they were most of my life.

But are they really so different. FFH has invested billions in the last couple of years, while holding the hedges. Alot of investment has been internal, expanding the insurance empire. With cash dividended to holdco, and subsiduary holding company cash they have been buying private businesses that are certainly going to suffer if another recession hits. It is looking more and more like a mini berk, excepting the hedges. Prem, like Buffett is always opportinistic. I expect they no longer have to take the value garbage such as fbk going forward. Buffett has been doing the same, using his operating cash flows as his hedge. Quite frankly, Buffett must have the best real time economic data available of any private investor on Earth. Berkshire is a microcosm of the worlds supply chain. I love the idea of FFH following WEB and becoming a mini-conglomerate like BRK, but I hate the businesses Prem has bought - flatware, sporting goods, restaurants? FFH needs to follow BRK into more essential services. Buy quality not cheap crap!! Why not buy a large stake in a small utility company, and grow the position over time when prices are favourable? But buy something better than flatware!! There, I feel much better having vented....... cheers Zorro I hear you. However, while they have been investing small sums in these "mediocre" businesses, they have been investing multiples alongside KW. Those rental payments would be your "utility" company. Its too bad they didn't keep part of First Canadian Place in Calgary.

But isn't there more to earn by keeping their capital strength and strong ratings at all times and then be able to increase the float when opportunities are good? I agree with the need for keeping capital strength and strong ratings and hedging does provide that benefit. However, I do not think the ability to write more business in hard markets adds all that much to Fairfax IV. I have long given up on expecting any underwriting profits from Fairfax. :) Value is predominantly going to be created by the investing abilities of HWIC. My main point is that most of the value created in the last decade has been due to a macro bet that succeeded. Fairfax now is much better positioned going forward but even with that it would need its macro bets to come through to get to the 15% annual BV growth. In a scenario where their macro bet does not play out successfully I think 15% BV growth is too optimistic unless Watsa pulls out another rabbit out of his hat. Vinod Hi Vinod, Just curious. Do you still hold FFH? I wonder sometime how they will do going forward. I think the route to greater profits for them involves expanding the insurance businesses that are profitable, investing the float in wholly owned businesses or partnerships such as Kennedy Wilson.

Your name should be sufficient so far. If it becomes shareholder only at some point I am sure it will be announced.

But are they really so different. FFH has invested billions in the last couple of years, while holding the hedges. Alot of investment has been internal, expanding the insurance empire. With cash dividended to holdco, and subsiduary holding company cash they have been buying private businesses that are certainly going to suffer if another recession hits. It is looking more and more like a mini berk, excepting the hedges. Prem, like Buffett is always opportinistic. I expect they no longer have to take the value garbage such as fbk going forward. Buffett has been doing the same, using his operating cash flows as his hedge. Quite frankly, Buffett must have the best real time economic data available of any private investor on Earth. Berkshire is a microcosm of the worlds supply chain.

Prince Alaweed is an interesting fellow. On one hand he is a bombast. However, he has done alot to advance the cause of women in Saudi Arabia, hiring them in his companies, promoting them to positions of power, and getting rid of the "dress code".

Can you direct to any sources on these types of option strategies? I.e. using options to maneuver into/out of a position for an indirect benefit. I.e. avoiding taxable events, selling puts to enter a position, selling calls to exit a position, etc. I don't have any sources. No book or website that I know of. My usage of options comes from knowing that calls give you the right to buy at a certain price, and puts give you the right to sell at a given price. From that knowledge, think strategically. I dont think it can be taught via a book. This needs alot of thinking and a lot of practical experience.

:)I always find these arguments rather one dimensional. There's all sorts of counter arguments. Specific to the US: 1) The military complex serves as the social welfare system at the moment. Ask any Senator fighting to get an arms plant or army base in his jurisdiction. A simple stroke of the pen moves the money from the military complex to other forms of social welfare. In Canada we have more direct forms of social welfare. 2) Not all over 65s want to retire completely. I work with several people who could have retired with full pensions but choose not to, and they still work as well as younger folks. They make 50-60 dollars perday, after stripping out their CPP and OAS. 3) Health care costs may not always increase. Efficiencies in delivery via IT technology are still in their infancy. Instead of having his heart cut open my Dad, and some older pals of mine, have had stents put in, which is an overnight procedure. 20 years ago, he would have been cut up. 4) People working in the "entitlement industries" pay taxes as well. 5) People receive entitlements to different degrees. I am guessing Buffett doesn't get much old age security money, after taxes. You could argue that Greece and Japan show you what happens in societies where entitlements have run amok, but they may be outliers rather than the rule. Greece's problems are more with low tax collection, and Japan's internal prejudice prevented them from accepting immigrants. This simply is not the case in most other Western societies. I guess my overall point is that present assumptions may not apply to the future.

I enjoyed the book. It is well written and exposed me to some interesting companies. I learned alot about John Malone I didn't know, and Cap Cities. It is somewhat of a Buffett book in disguise though since 3 of the eight CEOs were Berkshire controlled/influenced. The trick I guess is to find the CEOs who buy back stock when its cheap, in large amounts, dont award themselves excessive stock, dont go in for overpriced acquisitions etc. There cant be too many of these out there. 1 in 100000 perhaps, many of which this board has already identified. A good leisurely read. I too bought the hard cover. I buy about 5 real books a year for when I am on vacation or travelling. Prefer them to the Ipad for reading.

I got the joke right away... bunch of rubes :-). What I am more concerned with is what services a Buffett Groupie provides? Kind of distressing when I think about it too much.

Blows my mind Sanj. My investment returns skyrocketed with joining the board. Partly coincidental, mostly the great ideas on the board. Kind of like when the student is ready the teacher appears kind of thing. The donation button is always there. I know the cost offsets are appreciated by the boss. Sanj. your story is both awesome, and tragic. We have different backgrounds but the same motivation. I was 31 or 32 and broke, years into a mixture of unemployment, short term contract work, and perpetual job interviews by class A jerks, during Canada's nasty 90s. I decided the only way to end the cycle was to become financially independent and I am now about there. Another 11 - tx. Al.

mhdousa : roughly 20% FFh to US financials; the rapid rise of the financials has changed the ratio significantly. Dazel, that is the cost - I agree. I think they goofed... too much observation of the Japan bubble and not enough appreciation that it might be different elsewhere. Getting below 1060 on the SPY will take an awful lot. That being said, knowing I have that catastrophic insurance via FFh has enabled me to get very good results elsewhere without undue worrying, and there is always the possibility that it gets used and FFH makes billions. It has happened before, a couple of times, although the Cd bet was much more assymetric in nature.

Not an expert by any means but I have tried buying puts (spy) a few times. It has never worked very well. The problem is that it inovolves many facets of market timing and there is no way to get to an estimate ofmintrinsic value. It is much easier and cheaper to let FFH do it with their own hedges, or BRk do it via incoming cash. The FFh hedge has allowed me to buy vast amounts of US financials, and not have to be overly worried about them in a catastrophe situation. If things went totally in the dumper FFH may make hundreds of dollars per share, and have money to invest at the best time. In the meatime we eat a $50 per share non-cash loss but FFh still makes money.

The table on pg 2 of the press release has the realized/unrealized break out of the net investment gains. Page 11 shows 760 B of realized losses on hedges, and then around 297 in unrealized losses on same. Now its not really realized because the contracts are still in force and it could go the other way, but they are required to settle accounts at Q ends. However, if the markets keep rising this will become larger and larger. Still makes FFh an excellent hedge against a market drop that would hammer my other holdings, and FFh will still makes money in the meantime.

Fully hedged.... Did I read this right: Losses on the market hedges of about 1 B, unrealized.