Viking

I like Peter Lynch's line about how doctors like to invest in resource plays and miners like to invest in pharmaceuticals... we tend to invest in stuff we do not understand. Having followed BRK & FFH for many years many people on this board understand insurance co's pretty well. Do many investors on this board hold insurance investments today? It is clear the insurance market is in the process of shifting from a soft to a hard pricing environment. It has been happening over the past year. Insurance stocks are starting to reflect this fact and look to be one of the top performing groups over this time. As pricing continues to improve, earnings grow and P/BV multiples expand (what the market is willing to pay) insurance stocks look to be set to continue to outperform. My favourite picks are BRK, WRB and ACE (gives me some diversity). And yes, there are many more well run insurers (FFH etc). This is one sector I am hoping to increase exposure to over the next few months and then hang on for the ride.

Nice summary of Canadian Banks: http://seekingalpha.com/article/312544-sound-canadian-banks-offer-opportunity They all have reported Q4 results in the past week. RY looks to be the short term winner. In the weeks before reporting RY stock had sold off aggressively due to concerns about Euro exposure and capital markets. After reporting RY stock has moved up about 15%. The short term losers appear to BNS (concerns over capital levels) and BMO (weak results). Bottom line hard to argue Canadian banks are expensive at current prices.

The aquisition of the US mills were, in hindsight, a huge mistake. SFK/Fibrek were never able to drive the branding/profitability of the recycled pulp business. If Resolute is able to turn (or sell) the recycled pulp business in the US this aquisition will be a steal of a deal for them. I always liked the Quebec pulp operations; I sold SFK way back because of their inability to turn around the US recycled pulp business. I like the purchase (at $1.00) for Resolute shareholders... perhaps time to do a deep dive on Resolute.

Thanks for posting... very informative. I don't think this was Charlie's best interview; too much Warren Buffett love at times. Seth handled himself very well; that is one smart dude.

What I have been seeing the past couple of years is some pretty dramatic sector rotation. Last year oil and insurance stocks were in a bear markets. Earlier this year anything nuclear got creamed. Currently, financials are getting taken out to the woodshed. Should Europe look like it is getting its act together (something that starts to build confidence) I would expect the outlook for financials to turn bullish pretty fast. I remember all the doom and gloom surrounding big oil 18 months ago... look at things today....

The disconnect for me has been the (gov't) bond and stock markets in the US. The (gov't) bond market is saying a second recession is likely while the stock market a couple of weeks ago was looking for a Christmas rally. Oil trading close to $100 also does not look too bearish for the world economy. I am now 30% invested and 70% cash (bought a chunk of WFC & BRK on Friday). I have spent the past couple of months getting my buy list fine tuned should stocks (finally) sell off big time. Financials are mostly at multi-year lows... patiently waiting for the rest of the market to do the same. ;)

Operating earnings are at a cyclical low and insurance is in a soft pricing market. Cash on hand and earnings have been used to make a number of large aquisitions that will add nicely to intrinsic value. At some point in the next few years BRK earnings will grow nicely and the shares will outperform. I remember all the negative press Buffett got in the late '90's; my guess is there is a good chance that he be will be back in favour at some time over the next couple of years.

Has anyone been buying Canadian banks recently? RBC has been hit the hardest (largest capital markets business) and is now trading near a multi-year low. Its dividend yield is 5% and normalized PE is right around 10. I like the fact that RBC sold its US retail business as it was just a sink hole losing money and not strategically a good fit. Their focus on wealth management is in their sweet spot. I do question if a Canadian company can muscle in to the capital markets business (versus the 800lb US gorillas) and this is what has stopped me from establishing a position. I do still have a small position in BMO (established shortly after their US purchase). However, with WFC selling off I view WFC now as a better way to play US banking. I did establish a small position in POW (Power Corp) with its 5% dividend yield and PE under 10. POW includes Great West Lifeco and Investors Group (among other things) so is not a bank but more a holding company of financial assets. The Canadian life insurers have once again been crushed... just not sure what the impact to their business is of very low interest rates and falling equity markets (not sure how bad this is). Bottom line, lots of what looks to be very cheap financial companies in Canada.

I think many people who post on this board are fairly sophisticated investors who are looking for home run investments. BAC is a great example... should the bull thesis prove correct the stock could easily hit $20 in the next couple of years. Most board members do not show the same passion for the more boring stocks with less upside such as BRK. I think the key is understanding 'the story' as to why you have purchased a stock. Sometimes the story deteriorates (i.e. RIM) and my experience is one should sell. Sometimes the story gets better (i.e. BRK) and the stock sells off aggressively and my experience here is one should buy more. Sometimes you are doing the same thing as Mr. Market... most times you are doing the opposite of what Mr. Market is doing.

Imagine that you won the coveted lunch with Buffett auction and it was scheduled for today. After the small talk Buffett pulls a piece of paper out of his pocket; it has been folded. Your palms start to get a little sweaty as you reach accross the table... What stock do you think Buffett would write on the piece of paper today? My guess is Wells Fargo (WFC). It is trading below $24. Earnings at about $2.75. Dividend is about 2%. The company has started buying back shares. The company WANTS to return more cash to shareholders. The company looks to be 'best in class' in many of its businesses. The management team has done a wonderful job getting them through the post 2008 meltdown. Many of its competitors are wounded (some perhaps fatally). It is likely WFC will have the opportunity to buy more large assets on the cheap from Euro banks looking to shed assets and stabilize balance sheets. Large domestic competitors are distracted from manging their core businesses... What do you think?

One answer in 2007 & 2008 was to buy FFH and ride their CDS holdings. My understanding is FFH today has a much more neutral position (hedges offset equity investments). Is there a company out there today highly leveraged to benefit should a depression happen?

The IBM purchase also continues to diversify BRK nicely and this was likely one of the objectives. When you look at the amount of money BRK has spent the past three years Buffett definitely likes valuations and believes better times are ahead (perhaps not next week but in the coming years). During the past 18 months BRK has done a number of things to give investors more confidence in the company post Buffett: 1.) made large, diversified investments (reduced the huge cash holdings) 2.) continued to build bench 3.) announced parameters for future stock buybacks If I had to pick one stock today (to put all my net worth in it) and hold it for the next 10 years I would pick BRK. Looks to me to be a solid 8%'ish grower per year (in book value) with better upside for stock price (at current levels).

One school of thought says that following what is going on in the bond market tends to be a much better forward indicator than the stock market. The bond market is currently freaking out about Europe; the stock market looks to be not too concerned at all. Interesting dicotomy. http://www.bloomberg.com/news/2011-11-10/corporate-bond-risk-rises-in-europe-credit-default-swaps-show.html

The article in the link below provides some good examples as to why I am not optomistic that a solution will be found to the issues in Italy, Greece, Spain, Portugal and even France. Southern Europe culturally is VERY diferent from Northern Europe. For investors to assume that maintaining membership in the Euro is going to motivate these countries to 'change' a belief system that has evolved over hundereds of years is not realistic. The money these countries owe is NOT going to be paid back. Doing nothing is not an option as the bond vigilantees appear to have had enough. Forcing austerity onto these countries is going to make things worse in the short run (resulting in social upheaval). The best case scenario I see is a return to the past where everyone pretends there are no issues; clearly this is not realistic. The worst case scenarion is a repeat of 2008. As John Mauldin likes to say we have no good choices. It looks to me like we are now entering uncharted waters and a storm has started. The question is how bad the storm gets and what the boat looks like when it ends. Not an easy time to be a rational investor. I am back to 90% cash and 10% equities. I am focussed once again on keeping what I got. http://www.theglobeandmail.com/report-on-business/international-news/global-exchange/financial-times/ill-judged-smirks-about-italy-miss-deeper-truth/article2231965/ "The nearer Silvio Berlusconi moves to the exit, the clearer it becomes that he is an expression of the problem rather than the problem itself. Commentators excitedly speculate on possible successors. But in truth it is too much to expect that any one politician possesses enough power, charisma or courage to ram through the change Italy needs, from the top down. If the country is to be rescued we have to hope that using all the guile and intelligence they applied over the years to making sure nothing changes, networked Italians will begin to realize that the mechanisms they have used to keep the real world at bay are precisely those that have failed them. "

I am not sure how this changes much. The Italian people, like the Greeks, will fight austerity tooth and nail and the bureaucracy will continue to fudge the numbers (it's a cultural thing). Add in a recession and we get an ugly situation, especially for southern Europe. Greece was the first victim (still barely alive). The piranhas (the hedgies) have moved on to the next victim, Italy. The real question is will they be happy with a bite or are they going to try and take down the whole fish. As the saying goes... you couldn't make this stuff up!

This looks to be a great example of one of the flaws of the Euro model. Pappy is likely being a rational politician: to implement this deal the Greek government is going to have to make draconian changes to Greek society and these changes will be fought tooth and nail for years and will cause a great deal of suffering (likely leading to violence). Pappy perhaps understands that it will not be possible to drive the requiured reforms into Greek society. His solution: put it to a referendum 'and let the people decide'. This really demonstrates how difficult things are. The collateral damamge is Pappy's actions may actually now take down Portugal, Ireland and Italy and ultimately the Euro. Does Greece care? A little bit but not much. And that is why the Euro is likely a doomed currency. I will have to read up on how things are in Iceland... if they are getting back on their feet a few years after their default (like Argentina did) the Greeks are likely thinking they are better off to have a few brutal years and then the opportunity for thing to get better than have 20 years of continuous pain. Interesting.

I thought Greece was the big winner with the recent announcements and celebrations... they were getting 50% debt forgiveness. Obviously this is not the case. Taking this to a referendum pretty much means it will not be approved (who agrees to get whipped). Best line I have heard in a while was AZ Value: "Right now Angela Merkel et al must be busy sending out emails and memos all titled "Dude... WTF??" (or however you say that in German)." I am still laughing my ass off... Clearly I do not understand pretty much everything that is going over there.

I am getting the sense that Europe has finally hit the debt wall. The key question is how much Germany is willing to pay. If they are willing to pay lots they may make a difference to how this plays out. The south will not change their ways (how can we rip off the government) and France will not shrink its civil service. I do not see this crisis resulting in European culture coming together; I see the opposite as the losers (i.e. Greece) develop a new level of hatred to the northern countries and a rise in nationalism. Right now we have positive reports about a 50% cut in Greek Debt etc. Who is it that is paying the bill (which countries)? I am reading that Europe is going into recession. Recession plus austerity Greek style (coming to more countries) does not look good to me. This does not look like the end to me... perhaps the end of the begining.

Despite what 'good news' we hear from German and French politicians it appears to me that Europe is a train wreck waiting to happen. Dexia is the the tip of the iceberg. I think I am also starting to better understand Prem's concerns with the current mess (debt deflation) and how long and how much pain it takes to get through it.

I wonder if we do not have buying opportunities of a generation in insurance; I am talking about the exceptionally well run companies (not the companies that are underreserved which means BV is overstated). Buffett told us what he thinks about BRK's valuation. My guess is we still need an really bad year for catastrophe losses and for a bunch of excess capital to disappear before we get into a hard market. Currently my favourite is BRK. Others on my watch list are FFH (hedged) & WRB (no exposure to Europe); I am hoping they trade below BV. I also am starting to follow ACE (large, diversified, well managed). Most of the re-insurers look crazy cheap. I have followed PRE for years but they have new management and have had some issues with their French aquisition; I also do not understand what exposure they may have to Europe should things there get worse. With a basket of these companies hard to see how one does not do well over the next 10 years.

I have owned GVC on and off for the past couple of years (started following when I saw Francis Chou has purchased). As an FYI, I think Francis has been reducing his position in GVC (although I may be getting GVC confused with HF). I like what management has done. Growth pre-2008 was fueled via aquisitions & debt. When the downturn in 2008 hit management cut costs and used free cash flow to pay down debt. Last year the company started buying back a small amount of stock (given the low share price and lack of cheap aquisition opportunities). With debt now very manageable and free cash flow almost back to 2008 peak levels management this year initiated a dividend and is again purchasing some shares. My watchouts for GVC is its management structure (majority owned by a small group led by Sam Grippo if memory served me correct), very low trading volume (making it quite difficult to buy or sell stock in any volume), declining industry (newspapers), and elimination of tax loss carry forwards (earnings up till now have pretty much been tax free; not so moving forward). Bottom line, the company is well run, cheap and profitable.

beerbaron, I am also looking for top quality stocks in Canada (like a MSFT, KO etc). Strong franchise, big moat, low debt, good to great management etc. VERY difficult! I do think Canadian banks are a good option; right now I hold BMO and likely will add RY as it seems to be the most unloved of the bunch. I looked into POW; my concern is their life insurance business should long rates stay low and equities weaken further. I have followed TS.B since FFH (and Chow) purchased a few years ago. The stock traded over $15 a couple of months ago and today traded as low as $7.60. It has a $0.50 dividend (+6% yield) that looks reasonably secure. They sold their 20% stake in CTV earlier this year and paid down debt (now just over $100 million); compared to 2008 they have significantly delevered their balance sheet. My concern is the underlying business. I would love to buy CN but it is not cheap enough yet. I am undecided what to do with the cyclicals. I like WFT and CFP but they are not cheap enough for me yet. Big oil is also something I will spend some time on.

Not buying yet. My guess is people are only now starting to question earnings expectations for next year (and that they have to come down). Economically sensitive stuff is now getting hit (including the CAN$). When I see the 'safe' stuff (i.e. MSFT, ABT, KO etc) get hit hard then I will get greedy. Also, it looks like the S&P will be reaching a new low today... I am not a chart guy but I would expect this will create more negative sentiment in the short term.

bichaud, the only thing that surprised me in the whole interview was Buffett's comments on Europe near the end. He is normally quite positive about most issues and he is clearly worried about Europe. He also feels we are near the end - at a point where hard decisions need to be made (I loved Charlie's comment about kicking the can down the road and then Buffett commented they better not kick it too hard). Buffett said the Euro banks were encouraged to hold sovereign debt (did not have to hold reserves against it) and this let the banks lever up and earn an extra bit in earnings per share. He also commented about the challenges of forming a currency union without following it up with a political or fiscal union. Hard to see how Europe manages through this one without major issues developing.

DCG, I also sometimes wonder how Prem evaluates management when making a purchase. Perhaps they take a basket approach (buy a couple different companies) to achieve some basic diversification and really do not try and get too cute with management. Regarding underwriting, yes, FFH says all the right things. However, it takes many years to really know how good a company is at underwriting. At this time, based on past results, I would give FFH an average grade when it comes to underwriting (not terrible and not great). Now that their ship has been righted I would be disappointed if FFH did not trend over the next few years towards being a great underwriter. Time will tell.