Viking

I would like to invest in FFH with shares trading at CAN $585. My concern is how their investment portfolio will perform in the coming years - they have largely missed out on the bull market the past 7 years. With US 10 year treasuries at 2.2% and stocks trading at all time highs the easy money for both bonds and stocks has likely been made for this cycle. I likely will continue to raise cash, sit in the weeds and wait for the next market sell off.

Liberty, thanks for posting the 'Mostly Money' link. Best rational and balanced discussion of where the housing market in Canada is currently at that I have come across in a while.

People simply need to manage what they post (and their emotions). Politics, business and economics are different shades of grey. To try and carve 'politics' out makes no sense to me. When I see threads spiralling out of control I simply stop reading them.

The challenge for Fairfax is bonds and stocks have been in a bull market since 2010 and the easy money in this cycle likely has been made. Bond yields appear headed higher in the coming years which will make it very difficult for bonds to drive investment results. Rising bond yields also will not be good for the stock market (already trading at s high PE, largely due to crazy low yield on bonds). Where are the investments that are going to help deliver 15% return in 2017 and 2018? Now if we get a jump in 10 year bond yields (to over 3%) and a 10-20% stock market correction then FFH may look very appealing as they are mostly sitting on cash and will be in a position to benefit from the volatility. FFH stock does look cheap today; I am just not sure what the catalyst is today that is going to drive decent results in the next year or two. One catalyst may be share repurchases.

As measured by growth in a book value, Fairfax has really underperformed since 2010. That is a long time. The fundamental issue is they have made many very poor investment decisions over the past 7 years. I liked that they actually showed a couple of slides at the AGM that clearly demonstrated how poorly they have done. Given how bad the underperformance has been (and for how long) I think it is reasonable for investors to question just how good they are today at managing investments. What do board members think? Is the last 7 years the start of a new trend at FFH where they continue to underperform on the investment side of things? Or do they honestly understand their errors and more importantly have the people in place today to get their investing mojo back?

What I find very interesting is the abrupt change that has happened since the Trump election. The market is no longer focussed solely on the US Fed. This is a very good development. Interest rates need to normalize and it looks like this is now finally happening. Where we go is anyone's guess. Personally I find Jeff Gundlach at Doubleline and his monthly podcasts required listening to help understand where interest rates might be going. I think his current forecast is for yields on the 10 year US bond to move higher later this year (to the 2.6% range and possibly as high as 3%). Looking out a few years he would not be surprised to see yields move to 4 to 6%.

This certainly brings back a lot of memories. While very painful at the time for Fairfax Financial the wicked stock swings certainly benefitted some investors.

nafregrum, I also tell my kids that even if you do all the right things bad outcomes can still happen. Nothing is guaranteed. Kind of like Greek Mythology; if the gods are having a bad day you could pay a big price that has nothing to do with what you 'deserve'. However, this does not mean you should not do everything you can to achieve your goals.

Travis and longinvestor, I live in a pretty affluent area of greater Vancouver. I see many affluent kids who are likely going to struggle as they are growing up in a bubble (where mom and dad look after their every need). I see lots of affluent youth with little ambition, poor work ethic, an entitlement attitude living a life of liesure (living at home after graduation). I have told my kids many times that I am likely going to screw their life up (joking but with a subtle message). Parents want to protect their kids and want them live a stress free life - in doing this many kids are set up for failure once they turn 18 as they are ill equipped to deal with the real world. I came from the 'poor' side of the tracks and was able to hit it out of the park (lots of drive and very good work ethic). I think 100 years ago you could bell curve the youth population; 20% will do very well, 20% will fail and 60% will be somewhere in the middle. I think this is true for every generation. My goal with my kids is to do what I can to prepare them to be in the top 20% once they hit 18.

I am a firm believer that you can create your own 'luck' and lots of it. Simply by setting a goal (I want $1,000,000 in the bank by the time I am 40 years old) is a good example; your brain will start to figure it out (even when you sleep at night :-). You will also build and execute plans. When opportunities present themselves to partly achieve your goal you will be more likely to act decisively. People will call you lucky, when they see you achieving your goal. Prepraration is also key. I am telling all three of my kids to fill up theit tool boxes when they are young. Play sports (lots of different ones, some rep some house). Work for good companies with good/great bosses and coworkers. Get good grades (my wife is on this one). Travel and learn about the world. No crappy attitude and work hard. They have all enjoyed more than their fair share of success already; I am sure their friends think they are 'lucky'. Most people view success as luck because it conveniently gives them an out as to why they are not happy with their current lot in life; they were unlucky!

Smallcap, one strategy is to talk to them about investing and value investing concepts in ways that are relevant to them (companies and products they like). A little off topic but I started a Lego business with my kids to teach them the basics of running a business. My son was into Star Wars Lego and my daughter was into Harry Potter Lego; in the beginning the business funded their Lego purchases and over time got big enough to fund their phone purchase (when they hit grade 7). We purchased Lego collections off teenage kids (Craigslist, garage sales) and then sorted the bricks, picked the Lego sets and sold the sets we did not want to keep. It is time consuming (so you have to really like Lego to make it work). The key is to be patient on the buy side (only buy collections that are in great condition and loaded with the kinds of sets your kids are interested in). Bricklink is a great Lego resource (value of used sets etc).

You perfectly outline the dilemma facing first time buyers in Canada today. The recent past has taught that waiting was the wrong decision (and spectacularly so). The other side of the coin is 'if' we are in a bubble of historic proportions and it pops and prices move back to 2012 levels (not that crazy) first time buyers will be wiped out financially. Yes, if they remain in their house prices will rise over the following 10-20 years; however, they will be scarred financially. I remember the dot com bubble in the late '90's. It was clearly a bubble in 1996 but it did not pop until 2000. I remember people being called stupid for being sceptical of the permanence of the gains in 1997, 1998, 1999 because the dot com stocks just kept going higher... in 2001 people had a very different view of reality. The big difference between a stock bubble and a housing bubble is leverage. First time housing buyers today are highly leveraged. IF we get a correction of 20-30% first time buyers will get cleaned out. Psychologically, investors react very differently to gains and losses. A 30% gain feels great; however a 30% loss feels much, much worse. My point is the two are not symmetric. Crazy times for those first time buyers itching to use real estate to get rich (like their parents did). Good luck!

Savers in Canada today have many great options. RRSP's are great for high income earners. TFSA's are great for everyone. RESP's are a great way to save for kids post secondary education. As an example, I have three kids. When the third was born I set up a group RESP and made an initial contribution of $2,000 for each child ($6,000 total). The government kicked in 20% ($1,200). My starting total was $7,200. Today (13 years later) the total is north of $75,000. The power of compounding over many years. Each vehicle (RRSP, TFSA and RESP) has its strengths and weaknesses. I use all three vehicles and am very happy with them all.

Real estate prices in Vancouver are clearly in bubble territory. Prices are up 50% in my area (Langley) in the past 6 years. A 2,400 square foot house (no basement) is worth about $900-$950,0000. This same house might rent for $2,500 per month. Prices have been driven up primarily as interest rates have fallen to historic lows. It is possible to get a 5 year closed mortgage for 2.5%. If you have a $1 million dollar mortgage your interest costs are only $25,000 per year (about $2,000 per month); this is 'cheaper' than what it costs to rent ($2,500) per month. I think this is how many people do the math. My guess is until interest rates move higher (north of 4%) house prices will continue higher. A second factor, especially in greater Vancouver, is the Chinese buyer. This has added to demand. However, with the new capital controls the Chinese government put in place in December it appears demand from offshore Chinese buyers has slowed. Should interest rate jump higher at the same time demand from Offshore Chinses buyers contracts then Vancouver real estate will likely have a hard landing. As with any bubble popping it is impossible to predict the timing. I would not want to be a first time buyer leveraged to the hilt today. Buffett has taught us that you get rich by buying when quality is out of favour (margin of safety); and when quality gets really cheap you lever up and concentrate. In Vancouver today first time buyers are buying at the extreme high and they are using maximum leverage. Sounds like a recipe for disaster to me.

Mephistopheles, I agree with you that there will be wins that come from a Trump cabinet. I think the best thing about a Trump presidency is there will be a vigorous debate about the true benefits of 'globalization'. My read is economists are underestimating how mobile labour is, how difficult it is to retrain people as they age etc. This will allow programs to be put into place to improve people's lives. It also appears as though some countries are winning more than others and is not sustainable. With Trump the risk is the pendulum swings to far the other way (to protectionism).

Sanjeev, over the past 18 months we all have enough information on Trump to understand exactly what his character is. Since he has become president elect we also have ample evidence that nothing has changed. To me the surprising thing is that people are actually surprised he is now saying that he will not release his tax returns. And complaining at first press conference about crowd size gave me some comfort that my read on he man and those around him is accurate. It is clear to me that the Trump presidency is going to closely parallel many of the nationalist governments running European countries in the 30's. Those governments were welcomed by their people in the early years. He will implement policies in the coming weeks and months that will be supported by those who voted for him. The really interesting thing to me is Trump has not actually done anything yet... wait until he actually starts running his government. And attacking those who oppose him. And attack the media. I don't think my comparisons to 1930's European governments is going to be too far off.

Trump is not President yet so it is a little premature to compare him to other people who have actually served as President for 4 or 8 years terms. We can start in 4 years time. All we can really do at this point is look at what he has said and done up to now and try and project how he will do once in office. Here is a link to 35 quotes from President elect Trump. Not very inspiring. http://www.marieclaire.co.uk/entertainment/people/donald-trump-quotes-57213 When I process everything that Mr Trump has said I come to the conclusion that he has the potential to be the most disruptive US president of my lifetime. He has no filter. He craves attention. He has poor judgement. He is a liar. He is an embellisher. He is brilliant. He is very smart. He is very vindictive. Globalization is dead. Tariffs are on their way. Picking a fight with China alone would be enough. Russia is now our friend. Germany is now our enemy. The EU is a joke. My read is a Trump presidency will be totally unpredictable. The world order as we know it is in the process of being turned upside down and the S&P is in rally mode. Really? Trump is Clearly a change agent and there will be big winners and big losers. My answer in the short term is to raise cash and sit in the weeds for next few months and see how things play out.

A shade under 15% on average over the past 15 years. 1.) buying out of favour companies. 2.) extreme concentration when valuations get crazy low (for short periods, once every couple of years) 3.) sell companies when they are no longer cheap 4.) continuous learning (tweaking strategy over the years) The most important thing is developing a story for each purchase. If the story gets better you buy more. If Mr Market panics (the stock gets cheaper) you buy more. The key is the story that comes into focus over time (and changes over time). Price is there to serve you. What the experts/analysts are saying is often just noise (and often not a useful piece of information). Cash is a beautiful thing. Sit on cash until you find great investments... they will happen. Don't feel compelled to 'put your money to work' - one of the dumbest sayings I have ever heard.

Packer, I agree with what you say. My point is more for the US to win there will be an offsetting loser. And because the US is so big a small benefit for the US will be a massive loss for the other smaller country. Countries and certain industries and companies will lose benefits they have had for 50-60 years. This process will not be easy and i think the most likely outcome is that it results in a trade war, a rise in nationalism and conflict (hello 1930's?). I do not think global markets have priced in how difficult this adjustment process likely will be. Global markets are mostly all rallying after the Trump win indicating there are no losers. I have learned managing people for many years that change is VERY hard. If something they are used to gets taken away they get very cranky (even if it is small). Telling people in Canada or Mexico that they have had an unfair trade advantage versus the US and that they need to make concessions so the US can put more people back to work will not be an easy sell for politicians in either country. I just don't think this is the Disney type movie that financial markets are currently reflecting. It will really come down to just how serious Trump is about renegotiating deals. If it is all show then we will muddle through; if he is serious and wants meaningful changes and concessions then I think things get ugly fast.

I think most people are underestimating the impact Trump is going to have on financial markets when he becomes president January 20. He has stated very clearly that he is going to renegotiate trade deals (TPP, NAFTA) so they are much more favourable to the US. This puts the US on a collision course with other economies (Canada, Mexico, China, Germany etc). For Trump to get concessions he is going to have to show a very strong hand so I expect him to hammer frequently and hard. Speed: Trump will want to move fast given these sorts of things can take a long time to get done. Social Media: Trump will be looking for maximum coverage using twitter to demonstrate his awesomeness. I just do not see how this ends well for financial markets. Thoughts? Please post any articles you come across that cover this topic. Here is an example. If I was Trump and I wanted to get Apple to move iPhone production back to the US I would poke China in the eye. China likely retaliates by poking Apple in the eye. I would be surprised if Apple Has not given this a lot of thought. Here is an interesting article from Michael Pettis: http://carnegieendowment.org/chinafinancialmarkets/66485 LEADERSHIP HAS A COST: And there is no longer any question for some Americans that mercantilism has indeed been a policy response by many of its trade partners to slow growth. While China is usually singled out for its policies, other countries have behaved more irresponsibly, most notably rich Germany, whose surpluses, the largest in history, were built primarily on an undervalued currency, after the creation of the euro, and on weak wage growth, after the 2003–05 labor reforms. Growing opposition to trade, particularly among Americans most vulnerable to unemployment and consumer debt, was probably inevitable, and for the reasons listed in the Guardian article referred to above. But if an American retreat really is about to take place, rather than reorganize under Beijing’s leadership and around the surpluses China requires, it is far more likely that the world’s economies would be forced into domestic adjustments of various levels of difficulty, and respond with a mélange of industrial and trade policies aimed at easing the adjustment. To the extent that these policies force adjustment costs abroad, other economies will be forced to respond, and over time global trade will become unstable and increasingly contentious—and especially difficult for today’s surplus countries—in a way that is in fact closer to the historical norm than the anomalous stability of the four decades before 1914 and the six decades after 1945. A U.S. retreat from trade, in other words, will be damaging to global prospects. Many economists argue that it will also necessarily damage U.S. prospects, but they are almost certainly wrong. While there is no doubt that clumsily designed and implemented policy interventions can be disruptive for the U.S. economy, there is historical evidence that intervention can easily benefit diversified economies with large, persistent trade deficits, especially when these deficits are driven at least partly by distortions abroad. The case that most resembles that of the United States today is probably Britain in the 1920s, when its trade account was adversely affected by large foreign purchases of sterling for reserve and investment purposes. The British economy significantly underperformed that of both the United States and its continental rivals, with nearly a decade of unemployment in excess of 1 million insured workers.

14% return for the year; currently 65% cash and 35% invested (WFC, FFH, GIL and a sprinkling of forestry stocks). The Trump win was the big event for me; my portfolio was down about 5% before the US election as I was very heavy with US financial stocks.

My best idea right now (as of Dec 30, 2016) is US cash. I think it is highly likely we get a significant correction in the stock market at some point in Q1 (similar to last year). Should this happen I will likely be buying lots of stocks. Looking at this thread a year later it may look like cash was a terrible idea. Similar to what we have seen over the past 8 weeks I think what Trump does will heavily influence the stock market. The difference is what he does after he is sworn in in January will matter and the stakes will be much, much higher. Markets hate uncertainly and I think Trump is so all over the board that he is going to create a lot of volatility. Having some US cash on hand is my answer. And I say US$ cash because I think the CAN$ is in trouble (I am Canadian so currency matters). The Softwood Lumber deal has ended and duties of 25-40% will likely be put in place on Canadian softwood lumber. Trump wants to renegotiate NAFTA (this is a priority) which will not be good for Canada. Housing in Canada is a bubble looking for a reason to pop. My guess is the Can$ takes it on the chin in Q1.

I have started following (once again) a couple of Canadian (BC) based lumber companies. Residential house construction in the US looks to have a long runway ahead. As home construction continues to increase in the coming years this will continue to stoke demand for lumber. Lumber prices are currently at pretty decent levels and if they move higher into the spring this will be very good for lumber companies. The Canada US Softwood Lumber Agreement has also expired. This is always a very messy negotiation. There is little visibility as to how this agreement will shake out. Bottom line, Canadian producers in Eastern Canada are most at risk as they are high cost producers (Fairfax owned Resolute Forest Products). We could get some fireworks happening in January and February as a new deal gets hammered out. This could lead to a sell of of Canadian lumber companies. I am following two Canadian companies: 1.) West Fraser (WFT): low cost producer; 40% of production is in US 2.) Interfor (IFP): 70% of production is in US; only 15% of production goes from Canada to US I owned these companies back in 2012; since that time they have all undertaken very aggressive expansion plans of buying forestry assets in the US. A key reason is as a hedge to counter the risk of implementation of a negative Softwood Lumber Agreement. Very smart. These are very volatile stocks (up and down). I would love to see: 1.) a big sell off of Canadian lumber companies in January and February (on negative press due to SLA) 2.) lumber pricing moving higher due to higher demand from housing construction

This is the thread each year where I give thanks to Sanjeev and the many great posters from years past. I moved to Toronto for business reasons about 15 years ago and discovered this board and Fairfax as an investment. Good advice from many others on this board, good decisions, dumb luck and time all combined over many years to put me in a position financially that I was able to quit my day job and spend quality time with my young family (10 years now and counting). I have since moved back to Vancouver and in hindsight one of the greatest gifts of taking the job in Toronto was that I discovered this board and Fairfax; a great example of unintended positive consequences. I have no doubt that if I had not discovered this board and FFH I would still be working for someone else (when asked, I tell people that I am a financial planner with one client... my family). Thank you to Sanjeev, bsilly, cardboard and ericopoly to name just a very few; many more have helped me. I will always be very thankful. To all posters: thank you. By taking the time to post your thoughts you give others the opportunity to learn and benefit financially. Have a great holiday and a prosperous new year!

KinAlberta, the main difference I see between Watsa and Buffet is I find Prem's comments much more promotional and self serving in nature. This is likely due to the fact that FFH employs a crazy complicated process when it comes to how it invests its assets. These investments tend to be very large and non-traditional and bring lots of questions that are difficult if not impossible to answer consistently over time. Buffett comments are also promotional and self serving but he buys much higher quality companies so has less to explain. It is much easier to follow Buffett's logic. This is not to say that both companies are not great companies in their own right. I find as I age that I do not like surprises in my portfolio. This makes it much harder for me to own FFH and easier to own BRK. Currently I only own FFH having just bought it at US$460; at that price it was cheap enough to put up with all the complexity and poor investment returns of the past 5 years. Will it be a long term hold? No.