T-bone1

I would guess that Prem is very against that idea. I think Buffett has reluctantly created B shares and then split them purely out of fairness to small investors . . . not to help include them but only to make sure they weren't taken for a ride. We all know he created the B shares to prevent a number of people from creating closed end funds holding BRK only and charging management fees . . . I'm sure it pissed him off not only that they were hosing small investors, but also that they were doing so by piggybacking off of Warren's work and reputation. I'm sure he didn't want to split the B shares now, but the alternative would be that small holders of BNI wouldn't be able to get a tax-free exchange like large shareholders . .. and since BRK couldn't (wouldn't) pay all cash, there was only one alternative to still treat everyone fairly. I don't think FFH will ever split unless something like a closed-end FFH fund shows up. Prem has already said he wouldn't sell at 4X book, so its pretty clear he doesn't care what the valuation of the stock is - except for when it provides an opportunity to buy back or use stock for an accquisition.

A nice chunk of cash for FFH as well .. they own at least 2.09 million shares.

I believe Buffett said he knew about a canadian insurance company that had spotted the problems correctly and bought CDS at the annual meeting in 2007 or 2008.

Mungerville, the best rare-earth investment opportunity I have found is a large mine being reopened in California. Unfortunately it is privately owned by Goldman Sachs! There are a few small companies that own large deposite, but none are close to production or have funded projects. China has a stranglehold on world supply, and this is potentially a serious problem. Some have speculated that large consumers (like Toyota for their hybrid batteries and motors/dynamos) will buy up these deposits for insurance, as a hundred million isn't much to spend for a company that size.

misterstockwell, respectfully . . . I could not disagree more. We are not automatically exposed to huge risks because they are in the insurance industry. We are exposed to whatever risks the company decides to take on. I am sure they will be as prudent or moreso in taking these risks as they are in taking investment risk. There is no free lunch, one way or another they are taking risk. A lot of the gains in book value come from large fixed income investments funded by float. With zero or low cost float they can buy safe investments like muni bonds and make a profit. I certainly wouldn't want them levered 3 or 4 to 1 as a hedge fund, where they would be forced to reach for yield to pay for the interest on debt-funded leverage. Finally, I would suspect (as many here have alluded to) that it is the expense ratio rather than the loss ratio that is keeping the combined ratio high. Having a big insurance business is an asset, not a liability. The fact that they can write a lot more business than they currently chose to suggests to me that as a shareholder, I will reap the gains from this in the future. I think it is very short-term of you to suggest that they should shut down a world class worldwide business because it isn't profitable enough this quarter. On that last note, I must add two things. One is that you need to match assets to the float . . when you match the income on bonds to the cost of float this IS a very profitable business, even with (I suspect) a high expense ratio. Secondly, not that it has anything to do with the above points, but I think FFH waits until the end of the fourth quarter to see if there are no hurricanes, rather than September 30th, so I expect a better CR in Q4

Sanjeev, I realize that other stocks are cheaper now than they were two years ago, but I am surprised by your comment. It looks to me that FFH is trading under book value. Is likely overreserved and still has a lot of cash to deploy. If the market tanks from here FFH should be able to profitably grow its insurance book (as other insurance companies will not have the capital) . .. if the market keeps rising this company has a big equity portfolio. I realize that you probably want to err on the side of caution and certainly feel some sense of responsibility as you did create this board, but I for one would sleep like a baby if I went to the moon for ten years and had my entire net worth in FFH shares (in a safe deposit box in Switzerland). If you feel comfortable answering, I am curious if you think either that FFH is not trading at or below book value or that you don't think this is a great price to pay for a company like this. I have always been firmly in the camp that a well run insurer is worth a lot more than tangible book (and I agree with the earlier comment that ICICI now negates goodwill from ORH and NB, so GAAP is roughly tangible in my mind). I think 15-20% returns on book value PLUS an eventual revaluation to above book value is something to be very excited about. To look at it another way, I think this is a great time to be a bank . . . but their aren't any big flexible banks I trust. I applaude those on the board who had the conviction to invest in WFC and others in the single digits. . . I didn't. For all I know they are still insolvent (not that it matters with government support I guess). FFH is definately solvent and able to play the same (temporarily rigged in their favor) game the banks are. Instead of cheap deposits FFH takes in low cost float, but they don't have to worry about embarassment and can buy cheap CDOs (as evidenced by the ORH NAIC filing) or anything else that the "real banks" cough up. This is a great time to be a conservative leveraged investor (safely leveraged through deposits or well-written insurance float). Other than the recent opportunity to buy $100 cheaper (which is a large psychological barrier to buying more here) . . I don't think FFH has ever been cheaper.

Thanks! I have a kindle as well that I really like . . . but I've started buying investing books in hard copy again so that I can share them when I'm done.

Eric, I just picked a copy of the Davis Dynasty but haven't gotten to it yet. Do you have any idea what page the Barron's discussion you reference is on? I couldn't seem to find it on the internet. Thanks!

I believe at one point he also said that he was willing to be more diversified because entire sectors, like mining and oil/gas were cheap as opposed to individual companies that were unloved/misunderstood. This doesn't account for his decision to permanately run a more diversified portfolio, but I agree this may be partly do to clients' emotions.

ORH already bought back some of their preferreds. I think there are 1,167,163 outstanding of the fixed rate "A" series or $29,179,075 worth at a par value of $25 (and they are callable in 13 months at par) It looks like there are 1,872,000 outstanding of the floating rate "B" series, or $46,800,000 worth at par (they are callable in thirteen months at $25.38 or slightly more than par) This is a total of roughly $76 Million which they can call on October 20th of 2008. My guess is that they call both issues.

Anyone care to speculate what they will do with the money? I figure: A) They continue to raise capital opportunistically because rates are low and there will be opportunities in the future B) They plan on using the proceeds to retire the outstanding ORH preferreds C) They have another mid-sized acquisition in mind (I would guess that its either A or B)

Fairfax plans to raise $200-million The Canadian Press Tuesday, September 29, 2009 Toronto — Fairfax Financial Holdings Ltd. said Tuesday it plans to raise $200-million through an issue of preferred shares. The Toronto-based financial management and insurance firm said it will issue eight million shares at $25 each to boost its cash position, retire debt and other purposes. Holders of the series C preferred shares will be entitled to receive a cumulative quarterly fixed dividend yielding 5.75 per cent annually for the initial five year period ending Dec. 31, 2014. After that, the dividend rate will reset every five years at the five-year Government of Canada bond yield plus 3.15 per cent. “Fairfax intends to use the net proceeds of the offering to augment its cash position, to increase short term investments and marketable securities held at the holding company level, to retire outstanding debt and other corporate obligations from time to time, and for general corporate purposes,” Fairfax said in a statement. The issue is expected to close on or about Oct. 5.

SFK Pulp to increase Oct. 1 NBSK, recycled pulp prices SAN FRANCISCO, Sept. 25, 2009 (RISI) - SFK Pulp told US customers today that it will increase recycled bleached kraft, or market deinked pulp (MDIP) prices, effective October 1 until further notice, RISI has learned. SFK Pulp, the world's largest MDIP producer, will lift US prices by $20/tonne next month, industry contacts said. The firm did not cite a specific price level to customers. The small-capacity MDIP sector has seen US prices rise monthly as producers try keeping pace with an ongoing rise in recovered paper prices, which they use as fiber. September's US effective list price for MDIP rose to $595-645/tonne FOB, the third straight month it increased, according to RISI's PPI Pulp & Paper Week. SFK Pulp latest to move on NBSK. Also, SFK Pulp slated a $30/tonne price increase on northern bleached softwood kraft (NBSK) pulp in North America and Europe. The firm plans NBSK at $800/tonne in North America and $770/tonne in Europe. SFK Pulp is one of several NBSK producers to come out with October price increases. All NBSK producers that have come out with price increases slated $800/tonne in the USA. North American producers that export to Europe plan $770/tonne for NBSK on the continent, while the grade's European producers widely plan $760/tonne.

Einstein said something along the lines of "things should be made as simple as possible, but no more so" I believe the corollary applies here - things should be made as precise as possible but no more so. With that in mind, I would suggest that you assume FFH grows book value at 15% per year for the next 5 years or so- if you want to do some sort of intrinsic value calculation. I don't think more precise calculations of float, stocks and bonds will get you a more accurate answer. Also, I think it is important to note that while HWIC has a VERY VERY good track record in bonds, a lot of that track record took place during a period of higher interest rates. I think doing 300 basis points better than ten years treasuries is a pretty darn good result. That would be about 6.5% in this environment. I know the muni bonds are already getting them most of the way there, and they have done better in bonds (as well as BV growth) in the last few years. I think my estimates above are conservative (even though they suggest massive outperformance of the industry over time). I think they will do better, but I wouldn't want to count on it. It will just be a nice bonus if it happens.

same thing every year . . . still can't quite get myself to sell here though, even if it is very likely that one could buy back cheaper this afternoon/tommorow.

Domtar and Canfor both raising their North American NBSK prices $30 to $800 per tonne effective October 1st

I like contango, but not excited to see continued insider selling. " It is by far the best vehicle for investing in natural gas in the US" Can you give some reasoning on why you believe this? I think they are a good company and debt free, but 'best vehicle'? "Oil is much easier to understand " I have to disagree with this statement. Natural gas in North America is a local market without externalities. The annual decline rate of existing production is know, the marginal cost of new production at different levels of demand is known, and demand is fairly simple (heating, power generation, fertilizer, industrial). Sure weather has an effect, but over time demand is fairly stable. I think oil is a lot more complicated, but admittedly I know less about it

I think its likely that Compton will have to massively dilute shareholders again to deal with their bond issue. I wouldn't be surprised if they did this sooner than later at a discount to face value, despite the bonds having four years until maturity. I think that natural gas is likely to go A LOT lower in the next month due to the storage situation in North America. The last two storage injections coming in below "consensus" is likely more a function of pipelines issuing Operational Flow Orders because they can't take more gas than from production being voluntarily curtailed. There has alse been a large short squeeze, apparently stemming at least in part from large players positioning themselves short of the front month contract in order to game the monthly "roll" of the UNG (the giant natural gas ETF) into the next months contract. I am not an energy trader, so take this all for what its worth (about the same as what you paid for it), but the facts on the ground suggest to me that there is some serious short term pain in store for natural gas. That being said I am very bullish long term and am invested in a few players who I think have a bright future, sure survival, and a lot of upside leverage.

I'm not seeing a filing for this anywhere . . . and I'm not sure this would be legal.

I think the fact that they just sold a billion dollars worth of FFH stock suggests that they aren't going to walk away. Highly unlikely they would retire debt with the money instead in my opinion.

I believe market makers are regulated, or at least officially designated in those stocks in which they make a market. I think they are required to make a two sided market for at least 100 shares on each side, kind of like a specialist of old but without the requirement to use their own capital to keep an orderly market. Front running is placing a buy or sell order ahead of a large buy or sell order you have knowledge of. Major Wall Street firms are occasionally caught doing this, buying for their own account ahead of large mutual fund orders for example. The specialist firms, which recieved privaleged non-public information on order flow (in exchange for using their own capital to preserve an orderly market) routinely front ran their clients in both legal and illegal ways. I believe there was a large settlement for all of the illegal front running they did for years. High Frequency Traders use a number of strategies, some of which are probably illegal front running (which has been put to a stop over the last few days and weeks I think), some of which are technically legal but still abusive and predatory front running, and others that I don't quit understand. The blatant front running they were engaged in involved "flash orders", where brokers or ECNs would show them orders for a few milliseconds (a flash) to see if they wanted to fill the order, otherwise it went to the exchange. Because HFT's have computers physically located at the exchange, if they don't fill these orders, they can still front run them because they can get an order into the exchange before the original order gets there. They also probe the market with quick hundred share orders at different price points to sniff out large institutional orders using algorithms to slice and dice the order into smaller pieces. Since they know how this works, when they find a big order like this they front run it. There is a blog called zerohedge that covers all of this in much greater depth, but suffice to say that high frequency traders take a lot of money out of the market without investing in anything (making them a predatory money drain) and they don't have to provide liquidity if they don't want to (which was the service specialists provided in return for the right to be a generally predatory money drain on the market).

you might want to think about buying physical gold from a source like kitco.com If you are making an investment, then I would suggest investing in some of the miners. However, if you are looking at gold as insurance, I would suggest physically owning it. Like FFH's credit default swaps (which they did with Citi, Barclays, Deutshe only and all with collateral requirements), insurance is only worth it if you are sure (or at least as confident as possible) that you can collect if the worst happens. If there is superinflation (somewhere between now and hyperinflation), its tough to say exactly what will happen to ETFs or gold mining stocks.

latest North American NBSK prices for Sept 1: (price increase, then price, then effective date) Northern bleached softwood kraft (NBSK) Weyerhaeuser $40 $770 1-Sep Alberta-Pacific 40 770 1-Sep Domtar 40 770 1-Sep Canfor Pulp 40 770 1-Sep Tembec 50 780 1-Sep Mercer International 50 780 1-Sep

Sharper, I have owned and followed HP for some time. I view them as best in class and a likely acquisition target at some point. Do you have another favorite I should be comparing them to? Thanks, T-bone1

I would be surprised if they sold any more debt in the near term . . . but I am intrigued by the idea of selling long term debt as a way of betting on inflation