Uccmal

I guess we can add in losses of at least 200 M on insurance now with two massive earthquakes in ORH territories. And this all prior to the weather season. Stock should go on sale shortly. A

Here is a question. The one article claims that Loeb has rehabilitated himself, runs an NYC charity etc. etc. He wants to keep his image intact. Why doesn't he settle out of court and testify against the other allleged nefarious characters on condition that his personal communications are kept from the public? This is a civil suit, not a criminal suit, so he is not going to get less of a fine for good behaviour because he has cleaned up his act. He is still liable for alleged damages.

Omagh, In short I dont know. Its a bit akin to waiting for any cycle to shift but others are easier to pin down. Trying to value future writing capacity has got to be difficult. The very process of entering the hard market may impede their ability to write business. I think this is the part where Buffett is talking about swimming naked. He makes it sound deceptively simple. In practice it requires doing all the things we see FFH doing to preserve their balance sheet for that day. Sanj, I have no idea on timing but once the snowball gets rolling from the bad underwriting it will run out of control. Bad companies will write more and more unprofitable business trying to get back capital they have lost, and get hit with more and more claims. I remember distinctly the August day when FFh announced the first of many brutal quarters due to the asbestos litigation claims. The stock was cut by $100 in a couple of days - I had 30 shares then - a good portion of my net worth. I recognized it with Kingsway Financial and got out with profits. Others were not so lucky and rode KFs from 24 to <1.00.

You may recall during the last hard market stories of people who had 20 years of driving accident free making a single claim and subsequently facing massive premium increases and threats of insurance cancellation. The same thing was happening in the home insurance arena around 2003. There had been a cumulative effect of the asbestos litigation in the US, then the dual effect of the market crash in late 2000 followed by 9/11. By the time the hurricanes arrived the hard market was full on. The problem for FFH at the time was their capital structure was so weak from the asbestos claims in the late 90s that they couldn't really take that much advantage of the cycle. This time around they will be primed and ready when this time arrives. Insurance is just like any cycle in that it appears to turn quickly but is years in transition. So, if companies have been releasing reserves, and undercapitalizing for 5 years the crisis will appear to start in one or two quarters. The cumulative effect of low bond yields, declining insurance revenues, inflated earnings, and a couple of mid cats should tip a few companies over the edge at some point. Then the whole house of cards starts to come tumbling down. FFH and no doubt Berky pay alot of attention to counterparties... others dont so much. I would defer to what William Berkeley says in his quarterly reports as to what the final catalyst will be.

That's priceless Sanj... I had to try it out. Crip, thanks for the kind words - Believe me when I say I was thinking the same thing at the time. :-).

Aren't current losses of their hedge already +- calculated in their latest bv of 378? Why should we add another 12 to 14$ to their loss? Reduction of time value? (Sorry if this sounds dumb, I don't know anything about derivates.) Also those are unrealized losses which could (partly) get erased if a market correction hits? Their Russell and S&P hedges would have had another few dollars per share as of last week. Recovered some this week. As per duration, I believe they are either shorting directly the S&P index or using total return swaps on the other indexes which are fee based and require collateral to be posted. I dont think duration is much of an issue to this point. A reversal in the market would result in reversals in the status of their losses.

Crip posted on the board the other day. I agree with Partner24. Bsilly - I haven't heard or seen him in 3 years or so. Cardboard too, and Sanjeev. Very helpful back in the day, as they say.

Held on to our shares? I was accumulating during that period and lamented that I had gone out for lunch on the day in 2003 that FFH hit CDN$57. When I got back from lunch and figured out that the world hadn't ended, I managed scrape up the cash to buy 40 or 50 shares at ~CDN$70. Too bad that I didn't have an extra $25,000 laying around! I have it in my records somewhere - I recall buying 50 shares at around 78 cdn the same day. I think that was Feb. 2004 after the NYSE listing. I didn't find this board until the following fall. It all began to make sense when I started to follow this Message Board, bsilly and crip.

Quite funny in a pathetic sort of way. In sum, I have been very slowly selling since the New Year, virtually every day. From what other board members have been indicating many have been doing the same. I am not rushing out of the market but would like to be positioned safely for any pull backs. In addition I have almost cleared my exposure to long options - dont have any short exposure, either, unless you count FFH. I am not nervous but would rather wait for cash to build up and opportunities to arise as they will.

Uhuru, btw - Uccmal, do you really think SSW will increase the dividend when they still appear hell bent on acquiring yet more ships? I'm curious, the thought hadn't crossed my mind See SSw thread.

Myth, I have sold about 15% down from my peak holdings in the last couple of weeks. Its been more across the board selling of everything. The FBK position had gotten too big for a cyclical. Sold some FFH (15%) last week as well. The premise behind reducing my big position in FFH is that it will likely get cheaper before it rises. My holding in SSW hasn't changed much in recent weeks. If they start to re-increase the dividend at SSW it may become increasingly lucrative. I can see it easily tripling from here over a couple of years if the dividend comes back up to $1.60 or higher. I like PD too but hadn't thought of increasing my position. Hold a similar size of Akita, and Mullen, and Russell Metals. Russell is expensive but pays a good dividend. Getting a little off topic. On topic: Still hold a similar size position in CFX as PD et al.- looking to see where they put the dividend.

There are only 9 P&C companies in NA with a 25 year record...FFH is the best. FFH is in the top ten S&P 500 companies total, with a comparable record, and one other Canadian company is better. ELF doesn't fit the bill. Neils, You are correct. The years since the dividend particularly the last 3 have better than indicated records.

Oh, thanks Dazel, I see this second round of management buying as a great plus. One time can be explained away as management trying to put on a positive spin. The second time for with a larger number of shares shows more conviction.

Considering that they could have bought in for a lot less a few months ago this would seem to be a good omen for shareholders. I wonder if an offer is in the wind? Last I checked that is illegal, is it not? Now, if an offering is just in the wind, as it were, the burden of proof would probably be a little high to prove insider trading. More likely, they saved cash from their salary, and still see the company as undervalued. There is also the price of pulp. It is reasonable to assume that management feels more confident that the price is going to stay up, or that they are getting price increases themselves with their regular clients, which would create a whole new ball game.

A company has to have existed for 25 years and had a period of time in there where they grew at a rapid clip. FFH is helped by those first few years. The last few the returns have been "only" around 20%. I am wondering which Canadian company has beat them? I am thinking Suncor but am unsure of the duration. Other possibilites include George Weston, or IGM.

Upon reading the Annual Letter I stand throughly chastised and humbled. They are looking for good private companies! ;)

Hi Zorrofan, I respectfully disagree with your disagreement. :P I am not confident that FFH can buy a good business outside of insurance. Buffett had to be persuaded to pay up. I am way too concerned that FFH will botch it up as they have so many other acquisitions because they are not able to pay up. Right now they earn 180-200 M/ Quarter from dividends and interest. There are not that many businesses you could buy that will generate that volume of cash every quarter. If they buy a smaller business like FFH Weed and Feed (Ridley) the numbers get lost in the hugeness of the insurance ops. If they buy a larger business that generates 50 M or more per Quarter then you are looking at an investment of 2, 3 Billion. At this stage in their evolution they are better off doing what they are doing IMHO. When Buffett bought Blue Chip and Sees he was tiny as compared to the FFH of today. As per Bronco's comment I have never heard Prem indicate he is interested in buying whole operating businesses. I have noticed a tendency to participate in private partnerships however, such as the US real estate company they partnered in.

I came to this line of thinking after Dazel posted about their biggest hits being in the fixed income side of the equation. There is always so much focus on their equities on this board because that is what most of us do that we forget FFHs real drivers.

I dont think that FFH should be buying whole businesses outside of the insurance sector. So far I see nothing in their DNA that says they are good at this or will be good at this. In fact I have seen just the opposite in the past with Midland Walwyn, and Lindsay Morden as a couple of examples. Their successes lie in the area of bond investment, equity turnarounds, macro/sector investing. Expanding in the insurance sector is their best bet and applying what they already know across the world in passive investing is what they will be really good at. Prem would need to hire a Munger to offset his own group of Graham style investors. Finally as a shareholder of FFh I dont want them buying operating companies in whole. I can buy operating companies anytime that are undervalued and ripe for a turnaround. Do I really need FFH to do this for me? Andy Barnard has been put in charge because he has 15 years of WORLDWIDE experience.

The collective doesn't learn anything. They just shift from asset to asset. Panic and exit stocks in 2008. Then pile into the safety of treasuries, now commodities because: dont you know the world is running out of everything - obviously explains why nat. gas hasn't budged in years. By its very definition an overvalued situation is created by too many people thinking a particular asset is going to always go up. That is usually the point of capitulation. Commodities may be heading there but stocks sure aren't, yet. Of all things, the one that people haven't learned at all, is that you cannot predict the future in economics or business. We all search for the person with the divining rod be it Buffett, Watsa, Klarman, Munger, Grantham, or whomever. Not only can none of them predict the future but they dont even agree with one another most of the time. All we can do is indentify undervalued or overvalued situations and exploit the possible potentials that may exist. This is a daily conundrum for me. I have 30 some odd stocks and all but three or four are hitting new interim highs. Do I stay in them or sell? The best balance I have found is to lighten up positions that seem to be getting overvalued without selling out, expecially if they are raising their dividends.

I am not totally convinced of the timing factor in retiring early, for a reasonably good investor. Here is a situation. One has 4 years of significant capital gains which are taxed in Canada at 50% of your marginal tax rate. If one enters retirement and immediately has two or three losing years one gets a couple of things. First, in Canada there is a slew of tax rebates, deductions etc. for people with no earnings. This would offset some of the losses. Some would be offset by dividends. Some would be offset by pushing the capital losses back into prior years and actually getting a refund on past taxes paid. This works for individuals in Canada. I have no idea if its the same in the US. If you put your investments in a partnership or company then you can write off all kinds of things that previously cost you out-of pocket money. and you can use tax loss carryforwards. What I am basically saying is that the rich get richer because they know how to deal with money, and in fact know how to make money. I expect that applies to most of the people on this board. These skills are very transferable. These skills also last deep into old age, well beyond conventional retirement. Basically, what needs to be done is to set up 3 years or so of cash for living expenses. Firewall the rest of your investment money and run it as you always have. Re-assess regularly. Take excess cash out of the investment portfolio when things are going well and top up the three year amount.

I dont get it either. If they sell ST. F. then I hope they get enough per share to leave $5 per share cash to distribute to everyone.

Very interesting discussion. I may check out the book by Miller as well. Looked up a couple of related websites. Vishram, I dont disagree with where you are coming from but there is no way to protect against true worst cases: 1) your job skills become absolutely obsolete 2) War takes away your land - Sri Lanka, Europe WW2 - War is perhaps the most signficant negative driver of prosperity 3) Global climate change takes away your real estate. At a certain point you have to live on faith. It is far better to rent in Liepzig than own or be a landlord. Population has declined naturally by 20%. In that case you would want to hold German stocks not Leipzig real estate. A true backwardization of society would wipe out much of the populace so there is not much point in worrying about because you and I will be dead.

What's interesting is that volume is so low. This implies to me that there are alot of believers in some kind of positive outcome. Average daily volume is 35000 shares. Yesterday was an outright anomaly with 750 k. Taking out FFHs holding there are 100 M shares +/-. In a year only 7 m shares are trading out of 100 M. That's pretty low. Whoever is holding is holding tight.

RE: exchange rate sensitivities. They need only raise the realized price closer to the quoted market value by 20-30/tonne to offset any exchange rate increases. I for one figure the exchange rate is likely as high as its going to get. Alberta and Sask alone cannot drive up our dollar in perpetuity. Alertmeipp, We are not really in much disagreement here. I always value your posts.