T-bone1

How attractive would people find stocks if T-Bills were at 5% right now (I view that as a pretty normal level over long periods). I am ~35% cash and long a fair amount of stocks, but - with a few exceptions - I increasingly find myself investing in stocks that I "don't hate" and "don't think I can get hurt in" rather than companies I am truly excited about at these valuations.

Those issues are real, but they have literally been known about for 10 years. I think full cost accounting actually makes more sense for shale assets than successful efforts accounting, but like most things, it can be gamed. CHK has always capitalized just about anything they could, and the FWPP was a misguided attempt to align executives with shareholders in the wildcatting days that turned into a huge leveraged compensation scheme that served no purpose. The midstream and VPP liabilities are quantifiable and reasonably small (a few hundred million). To step back and look at the bigger picture, this is a company being run from the top by a board hand-picked by Mason Hawkins and Carl Icahn, both of whom have been buyers at these prices. The new CEO seems very capable and is saying the right things (specifically he is talking about ROIC and cleaning up complications rather than growth and meeting street expectations). I like the assets, have zero concerns about the accounting or current management team/board, and think there is a lot more improvement to come. Everyone agrees CHK need to do more work on costs and simplification. The stock went down after earnings because they are concentrating on that (at the expense of short term production growth). I think that is an opportunity.

TTWO - not a traditional value stock in any sense, but it looks to be cheap, have a moat, and undergoing positive fundamental changes Also added some CHK after earnings fallout

On a more serious note, depending on the climate where you are right now (and the availability in Europe), I think mini golf is always the best first date . . . and don't forget to let her win.

Wow, between the TWTR IPO and now an Italian asking a group of value investors for advice on women, this must be some sort of market topping indicator. I'll be in my bomb shelter memorizing the private keys to my bitcoins if anyone needs me. -T-Bone1

I agree. I've been complaining lately that I don't think FFH is cheap here, so in order to be consistent, I must applaud this offering.

Despite my previous rant about not liking Fairfax stock here, I must say that I still have the utmost respect for Prem and his team (and I look forward to attending many more annual meetings). I don't think Blackberry was a bad investment at $9 and I think it probably works out from here (assuming they are willing to outsource/spinoff/shutdown the manufacturing side). I bought calls to speculate that Prem was "a man of his word" with regard to BBRY, but I sold them after a few weeks because I didn't think he needed 6 weeks of due dilligence (thus it was fair to conclude that the market was roughly efficient and he was having trouble getting financing). Either way, my problem isn't with the team or their reputations - I hold them in the highest regard. My problem is with them investing in crap. I couldn't have been happier when the company held quality large caps and CDS . . . I used to get the yellow books on Odyssey as soon as they came out to look at the portfolio. I no longer feel that way. I'm not saying they are wrong, but I would rather make my own investments in things I understand. Abitibi/Bowater/RFP has been another mess. The unions were willing to discharge the pension obligations in bankruptcy but Prem and Co chose to honor them. This speaks to what high quality people Prem and Co are, but this is another example of Fairfax management transferring our (and their!) money to Canadian citizens for no good business reason I can see (maybe they thought it would make them work harder?). The one that really bothers me is Sandridge. That company was crap and crooked on top of it. Tom lied to shareholders on numerous occasions and I believe defrauded them. On top of that, he front ran them, self-dealt, was overpaid and incompetent. Everything he bought went down in value year after year. What the hell was the idea there? Can Fairfax hire a real oil and gas guy or stay out of that sector? Some funds have no problem with this. Others, like Leon Cooperman appear to let some old drinking buddy pick the energy stocks (GMXR when it was clearly insolvent and borderline fraudulent, LINE when it was playing accounting games, and now SD). Does someone who was a shareholder in the 90s know what they invested in then? Have they always owned these "lottery ticket" type companies? When Prem talked about building big positions in KFT, JNJ, BAC, etc "for the long term", that resonated with me. This doesn't. I don't mind that they are buying really distressed assets, but I do mind that they are giving away money to Canadian companies, getting in bed with bad actors, and investing in things they clearly don't understand. Like I said, I have all the respect in the world for Prem and his team, and I want to own his insurance companies, but I don't want this team investing for me right now. I wish they just went to cash in 2010 (other than the Berkshire backed Munis) and were content to be an insurance company (with the potential for great opportunistic investments in the future if they are right about deflation).

I find myself unhappily in the same position. I thought this was a stock I would never sell, but over the last month I couldn't find a good justification for holding on. For better or for worse, past experience has taught me that a market decline (which would be great for FFH) will provide the chance the buy the stock a lot cheaper. I certainly don't question their investment acumen and their long term record speaks for itself, but I find myself scratching my head at their investments more and more these days. I own a lot of CHK, but have never understood why someone would want to own XCO or SD. As far as I can tell, Tom Ward was a really bad businessman and a pretty bad guy . . . what the heck went on there? Fairfax seems to have put a lot of money into the worst segments of the energy sector and technology sectors (other than DELL). Are they really experts here? Sam Mitchell said at the last dinner that Sandridge has "great rock", but I have heard from more than one person that Tom Ward privately said it was "crappy rock" while he was still running the company. I still don't understand RFP, but that is much more likely to be a deficiency on my end. I don't understand the big banks (or bank of Ireland) so I can't really comment there either. I certainly hope all of these investments work out. I have basically had a bad gut feeling since the SFK/Fibrek fiasco. I understand why they did what they did, but it just didn't seem to pass the smell test. I believe I defended their actions on this board at the time, but can you really see Buffett forcing shareholders to accept a lower offer from a party he essentially controlled? Between the uber-bearish mentality (I would rather hold more cash than have FFH hold more hedges), the lionization of Tom Ward, The Fibrek mess, and this new Blackberry mess (a mess that it is getting harder and harder to believe was about making money rather than some sort of nationalism), I have to admit I no longer look at this management team as someone I'm willing to partner with at almost any price. As a few others have mentioned, the "everything is going great" public face doesn't give me more confidence. Buffett would have started each quarterly report by saying "We lost you a bunch of money this quarter because I screwed up and was too bearish and our own investments underperformed at the same time. We are going to do something about it, like possibly hold cash and lower exposure until we are comfortable investing . . ." I guess you can't expect anyone to be Buffett/Berkshire, but I must confess that with this management and company, I did. I feel like I've been told there is no Santa Claus and I no longer feel like I understand what they are doing or why they are doing it. Am I alone in this feeling? Does it bother anyone else that they have never given a straight answer as to why their "hedges" and bond portfolio are basically huge bets on the apocalypse? These positions go far beyond hedging and have cost us a lot of money as shareholders. I don't have a problem with them making macro bets, but I'd like to be treated like an adult an hear them say "we are making a huge macro bet because of such and such and here is why and here is what happens if it works out or doesn't". I don't really feel like a partner anymore when they instead say "we are cautious here" with no further explanation for loading up on derivatives that are unlikely to pay out and going massively long short while making tech and energy bets (two areas where they do not seem to have a good track record). /end of rant. Please tell me why I am wrong. I don't think the company is all that expensive here, but I think if the market rises it will be more expensive, and if they market falls I can buy it cheaper.

+1

With all due respect, I don't think it is a sexist comment (although I am not very PC in general). When someone publicly champions the cause of having more women executives, and then very publicly hires a women executive, I think it's fair to say that the two might have something to do with each other. Do you think it's sexist that Buffett says there should be more women executives? Or by corollary, is it sexist that he is essentially saying their should be less male executives? I'm sure he hired her based on merit, but given a male and female candidate that were equally qualified, I think it is safe to say that he would go with the woman because he has championed that cause. This is no different than Prem's BBRY investment. I'm sure he made it on the merits of the company, but it is a nice bonus for him (investment results thus far notwithstanding) that it is as Canadian company, because he wants to see Canadian companies succeed.

+1! Did you get one of those machines that sorts them based on the sound they make when they bounce? What did the banks that you returned the post 1982 pennies to think of you? Have you ever looked into nickels?

On the one hand, I think that a major reason Buffett has hired her and given her such public roles is that she is a woman. Buffett has made clear that he thinks more women should be in positions of responsibility and he is putting his money where his mouth is here. On the other hand, I don't think she would get some much publicity (and associated criticism) if it was some bright 29 year old guy Buffett had hired to be his eyes and ears at a minor subsidiary. So basically, I agree with Sanjeev (as usual). Time will tell if she is a good executive. I certainly haven't seen any evidence that she is responsible for any of the snafus at the paintco.

Helium

After getting over my initial shock at seeing the title of this thread, I have to say this sounds interesting. Price to book investing and even finding stocks via screening has gotten much more crowded and returns are probably no longer adequate. Most of the great value investments I have seen in the las year or two have been due to an analyst (or manager) finding some insight into the business, rather than into the balance sheet. Of course you could argue that Munger took Buffett in this direction long ago. Understanding the competitive advantages of Starbucks or American Express after the crash (I did neither) would have been a lot more profitable - and less work - than most of the singles, doubles and triples I have discovered (along with plenty of strikes). In any case, I look forward to this discussion. Thanks for posting! T-bone1

I thought it was a great interview as well. I think I recall seeing that his fund was up something like 280% since inception in 1997 (as of the end of 2012), as compared to something like 48% for the S&P over that period. Even without all of the positive associations (Pabrai, Buffett), you get the sense very quickly that he is a very high quality person.

+1

I've never heard a very compelling thesis on RFP . . . but a lot of very smart people that Sanjeev thinks very highly of have very large positions in it . . .

This is probably the only way they can get together to get their stories straight: http://finance.yahoo.com/news/steven-cohen-throws-party-despite-192416373.html

Bigger picture here: http://www.businessinsider.com/overstock-ceo-ad-mocks-steven-cohen-2013-7 this really made my morning.

You all must be better people than myself. I'll continue to "pile on" solo: http://www.businessinsider.com/steve-cohen-weight-gain-2013-7

Can we all just take a moment today to silently celebrate (or publicly gloat) that Stevie Cohen might finally be going down for the count? It has been a very long time coming and for those of us on the board (and who owned FFH in 2006), a very long wait. I certainly enjoy meeting so many of you at the Fairfax meeting each year. Perhaps a new semi-annual meeting is in order . . . Sanjeev, any interest in going to Cohen's trial one afternoon and having a Fairfax shareholders' dinner that evening in NYC? -t-bone1

Presented without comment: http://www.finalternatives.com/node/24208

What about a business the gov't runs? Selling lottery tickets? +1

A colleague and I once met a man in an airport who sold after-market warranties for Harley-Davidson motorcycles. When these bikes are modified, it voids the warranty. It turns out that most of the bikes are modified in-house at the Harley-Davidson factory, but the warranties are still voided. This gentleman used to work for H-D, and he further explained that the best and most experienced mechanics would be promoted off the line to work on the after-market modifications. The bottom line was that he was selling warranties on brand new bikes, which the very best H-D mechanics worked on during final assembly - so they actually had a lower rate of failure than the bikes under warranty. Also, riders who spend a lot of money on after-market customization, take much better care of their bikes. At the time, he said he was in 32 states with thousands of policies written a year and was yet to have a single claim.

Great answer Sanjeev!