Viking

Gio, I like your question as it is logical and straight forward. I have been investing in FFH on and off for the past 10 years... I must admit I have not been a buy and hold investor. In the good old days the stock could be purchased for under 0.80 x BV (sometimes much below) and sold a short time later for much higher (50 to 100% gains were not uncommon). Not only would the stock sell below book at the same time FFH would sometimes be sitting on large gains in its investment portfolio that were not yet priced into BV (like the credit default swaps back in 08 and 09); this made the purchase even more compelling. It was kind of like shooting fish in a barrel. Needless to say, back in the good old days, a trader mentality produced far better returns than buy and hold. And then FFH delisted from the NYSE and the crazy volatility vanished. Since then FFH's stock price movement has become a different animal. BV has gone sideways for two years and the stock is trading today where it was last trading during the financial crises in 2009. I was not a buyer at $370. I have been an aggressive buyer at $350 for three reasons: 1.) BV = $360. I am buying below BV. Not 0.80xBV but still below. 2.) Insurance market looks to be hardening with each passing month. FFH should be able to grow its insurance business very well. 3.) Investing: recently, FFH investments have made some nice moves (Cunningham & Brick sales, RIM getting some positive coverage and stock up almost 100% from lows) which may help Q4 BV. Dividend: expect announcement shortly; expect another $10. Helps stock have strong finish to end of year. Not a reason to buy but something I will be paying attention to. Should the stock continue to go lower I will be happy to purchase more. I am not sure yet if this is a short term or long term holding. If the company pops back to $380 by year end I may simply lock in a nice 7% gain. I need to spend more time understanding how much insurance pricing is improving... if the hard market is gaining more traction I would be foolish to sell at anything under 1.2xBV.

Kind of reminds me of the good old days when these sorts of articles would result in FFH falling 20% or 30% or 40% or more. I do miss the volatility as it was an easy way to make money. I am happy to take advantage of another dip under BV.

Book Value = $360. Stock trading at $348. P/BV = 0.97 ST Negative: expect ugly Q4 results due to US hurricane; FFH tends to get hit pretty hard with these sorts of things. Medium Term Catalyst: insurance markets are clearly hardening; FFH will benefit, perhaps in a big way. US hurricane will help - short term, hurricane is a negative but medium term it should prove to be a benefit as prices increase. Their investment portfolio will go sideways until their is a big sell off at which time FFH will have the cash to make out like bandits. In the good old days in a sell off you could always count on FFH P/BV dropping to about 0.80. Since they delisted from the NYSE the stock has not traded below BV very often. I am happy to re-establish a position today below book and ride the improvement in insurance; what they do moving forward on the investing side is a bonus - based on past history, my thinking is they are due for some nice upside surprises over the next year or two. Nice to be back in the saddle again...

If we got a 10% correction, I would focus on sectors that have been crushed recently - I would look to buy more DELL as it would likely trade in the mid to low $8.00 range. FFH is back on my radar; would be great to re-establish a position below BV as insurance pricing hardens. LUK also looks interesting below $22 given its stock price and all the cash it has on hand. I would love to get back into lots of other names (i.e. US banks etc) but it will take more than a 10% decline to get me excited.

For those who like to think about these sorts of things... not that there is anything wrong with it! ;) http://finance.yahoo.com/blogs/breakout/great-disconnect-awful-earnings-vs-hot-stock-market-113011268.html

"Well, almost all. Here's a mega-post of video excerpts from Fortune's annual technology conference" http://tech.fortune.cnn.com/2012/07/24/all-of-brainstorm-tech-in-one-place/?iid=SF_T_Lead

Just moved to 100% cash. Been a solid year. I am happy to wait for some great bargains to show up (like they always do).

DELL has been on my watch list for a while. FFH, Southeastern own it and Markel recently bought a little. On the flip side, here is what David Einhorn recently had to say "Dell (DELL) proved to be a disappointment. We had thought that the growth in the non-PC business would be enough to offset the deterioration in the PC business. The non-PC growth was smaller than we'd hoped and the PC deterioration was worse than we'd anticipated. While DELL has a good balance sheet, it appears likely that management will try to use much of the cash to try to buy its way into better businesses. At a minimum, this will erode some of the value cushion that the cash balance creates. We exited with a loss."

Obviously, if you are able to find a great company trading at a great value (as defined by the buyer) you should buy it regardless of what is going on in the economy or stock market in general. What I find interesting is how Mr Market's definition of value changes over time. From 1984 to 2000 the multiple got bid higher and higher.... in 1984 you likely bought value at a PE=8 and thought you were making out like a bandit selling a few years later at PE=12 (likely doubling your money). By 2000 PE's in the 20's were not considered excessive as stocks had run pretty much straight up for 20 years. And we were in a 20 year bull market. Since 2000 the opposite has happened... the PE that is considered 'value' has been steadily coming down. My guess is the bear market is not over yet even though it has been mauling investors for 12 years. Watsa, I think, would agree (given how hedged FFH is). In a bear market, I will be happy to buy low and sell high (and repeat) and protect my capital. At some point in the next 5 years my guess is the stock market will hit bottom and we will enter the next great bull market. That is the time to buy the best and hold tight for the long run. History teaches us that 'we are there' (the bottom) when stocks are hated by all. Clearly we are not there today.

I am back to 80% cash and 20% invested. I have been happy to cash out and lock in returns. Stocks are trading near a 4 year high. Why? 1.) Europe is entering a bad recession 2.) China is slowing 3.) The US is slowing; corporate profits are decelerating In short, the economic backdrop stinks. Europe debt problems remain; nothing has been solved and likely will not be in the near term. Yes, US housing looks to have bottomed and the fact things are not getting worse is positive. The only reason stocks averages are rallying these days is the 'smart' money is anticipating QE3. The worse the economic and profit news gets, the more the market averages go up. Bizzarre. Of course if you find great companies trading crazy cheap you should buy them. The summer months is a tough time to invest as the volume is light. As we enter Sept and volume increases I think life will get interesting. It has been a great year already and I am happy to move back to cash and wait for the nexr round of bargains to be served up.

You can add HPQ (-50%), BBY (-40%), FTR (-50%), RRD (-39%)... I do find these opportunities interesting (especially the basket approach). The challenge is valuing the business, management and future earnings. My big challenge is I give management the benefit of the doubt too much... I have had the most success staying away from turnarounds and sticking with well managed companies with improving earnings (and what management says will happen usually does happen). The one exception would be buying US banks; I have bought and sold them a couple of times over the past year (taking advantage of the volatility).

US 10 year bond yields are back at historic lows at 1.48% US GDP is clearly slowing: http://www.bloomberg.com/news/2012-07-17/gross-says-u-s-nearing-recession-as-goldman-sachs-cuts-forecast.html The odd man out is the US stock market. What is a little bizzarre to me is it seems to rally when the economic news actually gets worse... with the expectation that Bernanke and the Chinese will announce QE3 etc. http://www.bloomberg.com/news/2012-07-17/asian-stocks-fall-on-imf-cut-to-gdp-outlook-u-s-data.html

Here is a recent video from ECRI; my guess is their view is still in the minority. With the passage of time, my guess is they will be proven to have been correct (give or take a few months). If true, we will have an interesting Aug & Sept ahead of us. I will also be closely watching earnings guidance from the US large cap space. Interesting times! http://www.businesscycle.com/#

Buffett folded the partnership in the late 60's because stocks were grossly overpriced. The ratio today is higher than when Buffett wound down the partnership... so I do not follow the logic. Stocks obviously are much cheaper today than in 2000. We will find out in the coming years if they get even cheaper (or not). My guess is the secular bear market is not done and we will all come to understand and appreciate FFH's portfolio positioning (once again)!

I think MSFT understands that smartphones, tablets, notebooks, desktops and soon, TV, cars, at home or at work etc are all converging. Apple soon will have the ability to have all platforms work seemlessly together via 'the cloud'. As Apple grows their ability to tie everything together becomes even more powerful. I am not a teckie and definitely not an early adopter. I am a happy Microsoft consumer (have been for years). I am now wondering if I should begin migrating to Apple products - phone then perhaps tablet. The reason being is even I can see how all the Apple devices can work together; and this is only going to get better in the future. Go big or go home.

Made me wonder if they will be looking to purchase Nokia to get a manufacturing platform in the Smartphone segment (RIM could also be had cheaply). HPQ also is cheap. With a few purchases MSFT certainly could change the way the game is played in a hurry. My guess is they see Apple's hardware/closed system getting bigger and bigger and close to the point of actually challenging their monopoly in desktop operating systems. Once that genie is out of the bottle then MSFT suffer. The game is changing and MSFT just might get it...

Many stocks are at 52 week lows. Resource stocks have been killed. Financials are down alot. During last years sell off I noticed that some sectors and stocks got cheap in Aug and others got cheap in Nov; the market kind on cycled through sectors as it found its way to bottom. So I missed buying some great companies early in the sell off (like USB). So during this sell off (if thats what transpires in the coming months) I will be more aggressive buying companies as they get cheap and not wait. After today, I am 35% stocks and 65% cash. As a general rule for every 5% drop in the S&P I will invest about 10%-15% of my net worth. I.E. if the S&P falls from 1270 to 1200 I will look to move to 45% stocks and 55% cash. How much I spend will obviously depend on where the stocks I like trade. What stocks have you been buying or are you close to pulling the trigger on? Over the last month I purchased JPM, DNB, KR & DWA. Today I purchased BAC, RY.TO, WAG & POT On my watch list are GLW, KSS & BMO (and lots more...) I would also like to begin accumulating a few resource stocks (best in class with lots of cash). As the stocks I own fall 10% from my purchase price I will also look to double my position (to max 10 or 15% position) I am looking for: 1.) #1 or #2 player in their market segment 2.) strong balance sheet (low to moderate debt) 3.) strong management (successfully managed through 2008/09 melt down) 4.) strong history of returning capital to shareholders (dividend and/or share repurchases) 5.) stock trading at or near 52 week low

Interesting thread. At the end of the day I think we are all trying to find an approach to investing that fits with our emotional makeup and understanding of the markets. To be a 'value investor' does this mean one must buy and hold for ever and usually be 100% invested? Of course not. We all can be value investors and at the same time do very different things. We are all very different animals with different backgounds, different objectives and different risk tollerances. We also will have very different measures of value. The key is finding a strategy that delivers acceptable returns and lets you sleep at night. Personally, I like to hold high cash balances and sit in the weeds and wait for market dislocations like we are seeing right now. Kroger (KR) is an interesting case study and representative of much that has been happening to stocks the past decade. Kroger's business is stronger today than perhaps at any time in their history. And the stock is trading today where it was trading in 1998 (14 years ago). Earnings are muchg higher. The market PE has been contracting. Are we done? No idea. Buy and hold has been a very difficult strategy since the 2000 market top (I am talking in aggregate). Everyone has been given many opportunities to buy low and sell high and this will continue. Buy and hold (long term) will again be a great money-making strategy in the future; just not sure when.

Micheal Pettis recently wrote a somewhat detailed article explaining the challenges currenty faced by Spain: http://www.financialsense.com/contributors/michael-pettis/europes-depressing-prospects-spain-euro

I am not sure that Germany has a magic wand to 'fix' what ails Greece, Spain, Italy etc. The problem in those countries is their wages are not competitive. If wages do not come down, they will remain uncompetitive. The easiest way to get wages down is to let the currency depreciate; the Euro is falling versus the US$ but I am not sure anyone outside of Europe will like a Euro 30%-40% lower than where it is today. The Euro is the problem, not Germany. Germany can agree for the ECB to start cutting large cheques to the southern countries, like what happened with Greece. The problem with this solution is the quantity of Euro's that will be needed is likely very, very large. And this solution actually solves nothing... The fundamental problem of wage rates too high in the southern countries remains and the needed adjustments do not happen... more money needed... an endless cycle. This was the lesson that Greece has provided. Bottom line, the Euro is a massively flawed currency. The can will get kicked down the road for as long as possible as the decisions are simply too hard for a governement to make and there are no good options. The needed decisions will only be made with the threat of social chaos; we are getting closer in many countries. I would not be surprised to see the policital cracks in Europe get bigger and for old animosities to rise up. Things will likely get worse before they get better.

The Euro continues to fall versus the US$; it is now below 1.25. Also, yield on 10 year US Treasuries is at 1.71%, almost a new low (1.70%). Currency markets and bond markets are not optomistic. Commodity stocks, for the most part, have been hit pretty hard. US stocks don't seem concerned at all; they are down less than 10% after hitting multi-year high earlier this year. Lots of interesting things swirling around...

alert, what I found interesting last fall when the markets were selling off was not everything sold off at the same time. Some stuff bottomed in August and then moved higher. Other stuff was stronger in Aug/Sept and then sold off later. It seemed like the market was cycling through sectors, one at a time. I was wanting to purchase USB and watched it fall all the way to $20. I did not buy it because I felt the market would trade much lower in the coming weeks. What happened? USB moved much higher and the overall market sold off. I never did establish a position. My learning from last year is to not get too cute on the buy side. When I get a chance to buy great companies at very cheap prices do it. It is unfortunate you are down more than the average; just bad luck that you hold the sectors that are out of favour at the moment.

tombgrt, yes, last summer/fall I bought BRK all the way down to $66. I then started selling a small amount in the high 70's and recently sold out at $82. I was holding BRK in place of holding a bond and my goal was to do better than 6-8% per year. I sold simply to lock in my gain. BRK was one of a number of sells for me; I was just very pleased with my year to date results and decided to get much more defensive. I have not had a chance to review BRK's Q1 results. With equity markets strong, BV looks to have increased substantially, which is to be expected. With BRK now repurchasing shares at 1.1xBV I may have trouble reestablishing a position. I continue to love the company. Nothing has really changed in the macro environment over the past 8 months. The issues are still out there. I think there is a good chance that fear will hit markets again at some point this year and stocks will go on sale. I hope I have a chance to buy well run companies like BRK again. Perhaps BRK never trades below $82 again. As the old saying goes, there is more than one fish in the sea. Regarding my high cash position, every investor is in a very different personal situation. Returns from FFH were very good to me over the years (thanks to some good advice from posters on this board) and allowed me to quit my day job almost 7 years ago. I now invest and spend tons of time with my young family. I have enough capital to continue with this lifesyle for at least the next few years (and perhaps longer depending on returns); I do not have enough capital to say with certainly that I will never need another paying job again. If I can get an 8-10% annual return on my portfolio then I extend my current lifestlye indefinitely. Most importantly, if I take a 30 or 40% hit to my portfolio then I will most likely be looking for a day job in the next few years (not something that stresses me out but also not my first choice). As my kids get older I can see they need (and want) me around less. My wife and I have both talked about re-entering the work force in some capacity when out kids hit high school. So until then I will likely remain quite defensive and appear a little (a lot!) schizophrenic with some of my posts. Just trying to keep a good thing going! :-)

Since Q4 of last year stocks have had a great run. Over the past month I have been happy to lock in some pretty decent gains and now sit at almost 90% cash. Europe continues to be a mess; Asia looks to be slowing; the US??? Lately I have tried to pay less attention to organizations like ECRI and Hussman and focus more on buying quality that is out of favour and dirt cheap (i.e. US banks in Q4). However, I also love to read their stuff and I am sure it is impacting my thought process over time. I am once again happy to sit in the weeds and wait for stocks I like to fall to crazy cheap prices. Seems to happen every year, although certain sectors get beat up more than others. Many low quality stocks are currently cheap (in declining industries (i.e. ABH), some with a lot of debt). I am waiting for more high quality stuff to get cheap (as happened in Q4). Patience will be the key. I am becoming a scardy cat investor (buy when fear hits and sell when greed returns). With market PE multiples coming back down to earth we have had many years with lots of volatility and the market averages basically moving sideways (and down in real terms). Buy and hold will be a great strategy at some point in the future; just not sure that the bear market is over yet (started in 2000 for S&P). Regardless, I do need to work on my selling strategy as I do have a habit of exiting positions early.

tyska, if ABH is getting such a great deal would it make sense to buy ABH? The possibility of getting FBK at a low prices was one of a few reasons why I recently bought ABH.