niels12think

On a look through basis, suppose one FFH share at book value is equivalent to some shares and bonds and chunk of business, etc. that Prem et. al. has already found attractive at their prices. Then which is better: buying the share of FFH, i.e. the equivalent of buying the underlying assets at their already attractive prices buying some other assets, i.e. assets that has not yet been attractive Cheers!

It took some investigation on my part to find the coordinates. i then verified the site by cross checking with the video and photos from onp site to make absolutely sure i found the correct spot. Everything fits. Cheers!

I used mapmart.com - they have a large number of different options and sattellites available. The cost differs significantly among the options. I went for the plain old high res black and white, which was among the cheapest. Cheers!

Hope not to attract too much flame, but just want to share a little of my experience and thinking. I was also originally thinking that there was nothing wrong in Orient Paper and went long, but continued to do due dilligence and discovered a number of issues that made me change my mind. It was relatively costly to me. I no longer have any position in ONP. I ordered satellite photos of the factory, and from these it seemed evident to me that 1) the progress on the new line was no where near what ONP was claiming 2) the logistics of the factory was awful, making it a bad place to produce so much paper (missing roads, water access, room on factory site, to little waste paper, ...). Additionally, no trucks could be seen, as was expected on this time of the day, if it was really a very busy paper factory as claimed by ONP. 3) ONP according to themselves molested an old line to make room for the new line. Later they claimed that an audit (after the molesting) showed the old line *was* capable of producing what they claimed. 4) the machinery in the original video is very old and outdated - notice the old communist writing on the machine. This writing was then removed and do not appear on new photos from ONP web site (either the pictures from ONP was photoshopped, or ONP actually painted the old machine ...) 5) you only have ONP's word that MW tried to get money for issuing a positive report. MW themselves deny this. Now, if - and this is a speculative if - it's really ONP who are the crooks, then why wouldn't they lie also about this aspect. 6) ONP bought (or rather long term leased) a lot of farmland around their factory. This was in order to build the new line. But when allegations against their old lines emerged, then ONP instead tore down the old line in order to build a new on the existing premesis even if this supposedly would adversely interfere with the ongoing production. 7) ONP did an audit involving externals, but kept the actual result of the audit internal. Basically, ONP just issued a report saying that they found nothing materially wrong. But they did not say much about where and how deep the investigation was in detail. Nor did ONP disclose any evidence. Cheers!

The rent, of course, is there allright ;) What I'm trying to say, is just that for an owner occupied home, this advantage comes in the form of consumption: You consume the "rent" by living in the house. And consumption is not investing. If you buy "more" house than what you need (and live in the house), then this is really just equivalent to consuming more. So it should be compared to other consumption. And you should value this consumption it based on the utility it has to you. Cheers!

So it's 100% of the time -- unless you have found houses on the rental market where the rent is free? :) It's more like saying: "what is saved is earned", and go on to buy more of X than you needed just because there was a rebate and then kidding yourself that you earned a lot of money. Well it's both at the same time really. You can either own the investment and have it throw off cash which you use to pay your rent, or you can just skip that step and buy the house. Now, it's exceedingly difficult for the average Joe to find investments that will reliably throw off enough income AFTER tax to pay his rent. Which is why it's the better investment for most people to own the house before investing elsewhere. If you the home is exactly what you need, then the basic question should be buy versus rent? If the home is for the long term, then a buy would most likely be attractive. Only if people has additional funds should the investment perspective enter the equation. And then I find it likely that most people would be better off with stocks for the very long term. Cheers!

The real return on businesses is zero if you disallow their earnings. Similarly, real estate offers no returns when you disallow the cap rate. But neither scenario is realistic. For some reason though, perhaps it's the real estate crash, it is becoming popular to pass around articles suggesting that real estate offers zero returns. It's only if you would have paid the rent anyway, that this "rent" should be included in the equation for the owner occupied home. But then we are not really looking at real estate as an investment, but rather as a place to live. Beyond this point, the "rent" should be disregarded. It's really two different questions: 1) suppose you have found the home that you will live in. Should you rent or buy? 2) for any additional funds, should you buy "more"/"better" house to live in or should you buy e.g. stocks or bonds or X for the additional funds? This is different for businesses, where the business earnings should be included in the equation no matter the size. Btw, the studies were also around during the boom times, but people dismissed them outright. People would rather believe the fairy tale than face the historic facts. Cheers!

The really long term real return on real estate is more likely approx. zero percent as documented in this very thorough study covering the period 1628-1973: http://arno.unimaas.nl/show.cgi?fid=10696 Problem is, there are larges swings along the years, and it's very easy to get caught in thinking based on just a single lifetime experience. For all of us living now, the personal experience is likely somewhat different higher than zero, but unfortunately this doesn't change the really long term propable real return. Cheers!

Problem is, the assets can't be sold without disregarding real life - the other thing is impossible fiction. None has ever promised that an asset could be sold independently just because it's listed in the accounts. The only most realistic way to sell the goodwill asset is to sell the subs, and then buy tangible assets for the proceeds. In this case, you might even realize a value above the stated book for the subs ;) But on the other hand, you would remove more tangible assets (caused by the float) than the proceeds of the sale. Of course you would also loose a lot of claims reserves, recoverables, etc. in this sale. In short, neither book value nor tangible book value of a company represents the real value of the business. And this is true even if a lot of intelligent persons has spend a lot of time trying to set up rules for how to determine book value - both generally and in each specific company. And it's also true even if companies employ a lot of people that uses their skills and time on the bookkeeping in order to make it very accurate and elaborate and with no errors :o Even in a liquidation situation, you would propably find that insurers can have a very different value than the tangible book (loss reserves, etc.) ... And after all, it's better to be approximately right than precisely wrong. Cheers!

Sorry to quote myself. But lets say the offer is only $1 for every $2 of goodwill. Should the still take the deal? Of course! Or how about only $1 for every $5 of goodwill. Should they still take the deal? Of course! Even at $1 of cash for every $100 of goodwill. Does it still make good economic sense to make the deal? Of course! So that's why it's worth practically nothing -- compared to the other components of book value, such as CASH!!! Sorry to continue, but I see the goodwill as the price to be paid in order to take over the (remaining) insurance operations, which include (minority interests in) insurance contracts, organisation, management, claims reserve, float, brand, customers, etc. If you sell the goodwill, then logically you have to also to include in the sale, the (tangible) assets that were part of the float the loss reserves the organisation, customers, management etc. that were bought for this goodwill. In other words, you will sell a future income stream if you sell this goodwill. And I, for one, would be very happy to buy what effectively is 25% of ORH's future income stream at US$ 1 ;D You may even argue that the goodwill part should in reality be "more valuable" than the tangible assets. Example: which is best ? buy tangible assets for $100, which yields maybe $6 a year buy a minority interest in an insurer for $100, which may be composed of $50 goodwill, $250 tangible assets and $200 loss reservs and debt earning $15 a year apparantly, the goodwill part of $50 was in reality earning $9 a year in the example (the earnings over the non-levered tangible asset) and compunding very rapidly. Or rephrased, would you sell for $50 (or 50 cents), an earnings stream of $9 a year, compounding at 20%? Or in other words, is the goodwill worthless? In my mind - of course not, in fact there should be a lot more goodwill than what appears from the books, and it is compounding at a very nice clip ;) Cheers!

From 2011Q1 report: "Common stock effectively outstanding – end of period. . . . . . 20,425,132" Which, at a closing price of US$ 403 per share, comes to a market cap of US$ 8.2B. Cheers!

Even in tangible book, the loss reserves may turn out to be over or under what is eventually necessary to cover the claims. Loss reserves are not like ordinary debt, where the amount is known with certainty. Also, the tangible book doesn't take into account, the risk in the underlying business, nor the earnings potential. Reinsurance adds to the uncertainty. Example: Even if two insurers has exactly the same tangible book value, then the worst case (and best case) scenarios for the two insurers in case of natural disasters, "black Tuesdays" and sensitivity to political, macro or other risks may differ significantly. So especially for insurers, it seems to me it's not possible to do an "apples-to-apples" comparison by just looking at tangible book. Cheers!

The book value of companies can be rather meaningless, so maybe we shouldn't try to attach meaning to it? From my point of view, the intrinsic value is much higher than the book value - and it's the intrinsic value - and the change in intrinsic value - which is important for investment purpose. The book value is more or less just an artifact which is determined by the way a company has grown and the management judgement used in determining a number of things, including loss reserves, accounting policies, write-offs & impairment, amortization plus the prices at which the company stocks were issued and/or bought back. Just because the book value is determined very elaborately and accurately doesn't mean it's all-important. Hasn't Fairfax issued new shares in order to take over (minority interests in) companies? Further, the cash paid is from the holding company, which doesn't write any insurances and therefore doesn't really have statutory capital. Changes at the holding co shouldn't directly affect the business that the subs can write? cheers!

So all Canadians are scrampling to become mutual policy holders in a hurry? Preferably taking out similar policies in as many mutuals as possible? Cheers :o

Of course companies can fail for a multitude of reasons. Indeed if you believe a company is about to fail, then paying anything for the stock might be a mistake. But this is besides the point. I was talking about insurance companies in general and Fairfax specifically. In my opion, the intrinsic value seems to be quite a lot above book. Indeed, if you look at the aquisitions made then the price has been double significantly above book. Cheers!

I can understand that intelligent investors wish a margin of safety between intrinsic value and market value in order to invest. However, just because someone makes a wish, doesn't mean it must come true or that it is the "correct" value. Rather, a market value with a discount to the intrinsic value should be recognised for being just a fluke of the market, giving temporarily a discount to the true, intrinsic value. It doesn't need to happen, but it may happen. If it happens, it's irrational seen on a stand alone basis - why would anyone wish to sell something below the true value. Also, even if something has happened a couple of times, doesn't make it a rule that can be relied upon to usually happen. But then again, it might happen once more. Additionally, just because the book value is stated in an annual report, the book value is not the same as intrinsic value. Indeed, for insurance companies, it would be considered irrational if all the work effort of thousands of people, experience and investments in building up the insurance (and investment) organisation should be considered to have zero value just because it happened to be grown organically and therefore not attached any goodwill in the annual accounts. Also there are other investments carried at below fair price. And the "quality" of loss reserves must be part of the equation too. To me, it seems that the book value significantly understates the intrinsic value and that some hedge funds and the financial crisis has previously brought down the market price to irrationally low levels. But that it should be a rule to be relied upon; that we can somehow count on external "forces" to "magically" drive irrationally low levels in market price would seem irrational to me. Even when the stock is trading at above current book value, it seems to me to be trading at significantly below intrinsic value. Cheers!

The exchange rate rate USD/CAD has to be taken into account, but even when this is worked in, the price to book ratio has on average been over one when measured at year end. From page 213 in Fairfax' annual report 2010 (PPS is closing price in CAD): Year increase in BVPS BVPS EPS PPS 1985 – 1.52 (1.35) 3.25 1986 179.6% 4.25 0.98 12.75 1987 48.2% 6.30 1.72 12.37 1988 31.1% 8.26 1.63 15.00 1989 27.1% 10.50 1.87 18.75 1990 41.3% 14.84 2.42 11.00 1991 23.9% 18.38 3.34 21.25 1992 0.9% 18.55 1.44 25.00 1993 42.3% 26.39 4.19 61.25 1994 17.7% 31.06 3.41 67.00 1995 25.2% 38.89 7.15 98.00 1996 62.8% 63.31 11.26 290.00 1997 36.3% 86.28 14.12 320.00 1998 30.4% 112.49 23.60 540.00 1999 38.3% 155.55 3.20 245.50 2000 (4.8 )% 148.14 5.04 228.50 2001 (21)% 117.03 (31.93) 164.00 2002 7.0% 125.25 17.49 121.11 2003 30.7% 163.70 19.51 226.11 2004 (0.6)% 162.76 3.11 202.24 2005 (15.5)% 137.50 (27.75) 168.00 2006 9.2% 150.16 11.92 231.67 2007 53.2% 230.01 58.38 287.00 2008 21.0% 278.28 79.53 390.00 2009 32.9% 369.80 43.75 410.00 2010 2.6% 379.46 21.31 408.99 Cheers!

According to the short position, some people may actually hold less than 0% ffh, only we can't see how many ... Cheers!

SD, are you suggesting "one or two of the companies on this board" might be buyers? My own experience suggest stock valuations increase and premiums harden when insurers demutualize by going public. Cheers!

Yes, the price quoted on the pink sheets is in USD, where the price of FFH.TO is in CAD. Yes, compared to the low average daily volume, the short position is significant. As to why someone would short Fairfax as opposed to e.g. short the TYX directly, doesn't seem to make sense; must be something more speculative? Cheers

Yes, I've also transferred my shares from US to CA. In one account at one brokerage without any fee, but for shares in another account at another brokerage, there was a small fee. I was just curious if the number of Fairfax shares on the pink sheets was forever diminishing - or if shares could also be transferred the other way. But I guess then that shares can flow freely both ways. Cheers!

Does anybody know where to find additional information? E.g. how many of Fairfax' shares are trading on the pink sheets? if shares can be moved from Toronto to the pink sheets? is the pink sheets listing mandated by Fairfax or is this listing contradictionary to the company wishes? Thanks

The unreported / "fail to deliver" short position should be added on top of this: from http://www.otcmarkets.com/stock/FRFHF/short-sales: "No Reg SHO data is available for FRFHF". History teaches us that this can be significant - even more so for pink sheets; pink sheets can be dodgy... If anyone has a pink sheet position in Fairfax, why not ask your broker to do a northbound transfer of the position to Toronto Stock Exchange? The rules, regulations and transparancy seems to a lot better at a real exchange instead of the pink sheets. In fact, why doesn't Fairfax withdraw from the pink sheets? Cheers!

As I understand it, this only covers the short position registered with the Toronto Stock Exchange. There is an additional short position for the pink sheets: Date Short Interest ; % Change ; Avg. Daily Share Volume ; Days to Cover ; Split ; New Issue Mar 15, 2011105,637 -9.37 10,021 10.54 No No from http://www.otcmarkets.com/stock/FRFHF/short-sales The total reported short position at 15th March, 2011 therefore seems to be 144,516 Cheers

Depends on what you mean by the last few ;) There was not always a dividend, and in the last few years, the dividend been meaningful compared to book. Cheers!