Viking

I have not yet completely wrapped my head around this one. Bottom line is FFH may no longer need to tap US investors for $ (i.e. US listing was ALL about being able to raise $ to repair the balance sheet and more recently to buy back the subs). If FFH continues to post strong results my guess is they will begin to aggressively re-purchase FFH shares. Perhaps getting all the trading on one exchange makes this future move easier? All things being equal, I see this move as lowering demand for FFH shares (US investors) = lower price. I wonder if FFH will be viewed as a true blue chip in the coming years. Their business WILL NOT BE PREDICTABLE in a way that analysts like. Regarding future trading patterns, I also wonder if this move will change things. If the stock moves to below .9 of current BV (it is getting close) I will likely start nibbling. Underwriting will be poor; interest and dividend income will be very good and investment returns will be a crap shoot. The only near term catalyst I see is FFH buying back stock and this will only happen if the price drops (likely well below the $345US they just issued equity at). I do agree that in 5 years the stock will be significantly higher and it is for this reason I would like to get a core position re-established.

I like to run and hide from stuff that is in a bubble. Rather, I like to find stuff that is in a bear market and unloved. Other than perhaps the US$, not alot to chose from...

Yes, we currently are not sitting on massive gains in book value that most everyone seems to be missing making the purchase pretty much a no brainer. Perhaps we have been spoiled in the past. Looking at the current price of the stock which is trading at a small discount to BV my view is FFH is a decent buy. On a go forward basis, they will have OK underwriting, very good interest and dividend income and strong investment returns. One will likely generate satisfactory returns buying FFH at current levels. If global stock markets plumb new lows and corporate yield spreads widen significantly then FFH BV will have some near term issues. However, what if stock markets continue to rally? FFY will outperform. What if the soft market gets worse? What if a mega cat hits? Who knows what will happen tomorrow? Bottom line is there are many moving parts. Each person will need to weigh the individual pieces and make a decision. Currently I do not own FFH. However, should it fall below CAN$370 I will likely again be a buyer. The single biggest reason I will be is my respect for how FFH is navigating through the current turmoil. I KNOW they are much smarter than me and I will be happy to have them manage some of my money at a nice discount to current BV.

I think the quickest driver of FFH's share price would be multiple expansion (I do not think this likely in the near term). At some point in the next few years it would not surprise me to see it trading at 1.2 or 1.3 x BV. Currently the whole insurance sector is out of favour and multiples are low. A key challenge today is the soft pricing environment. As a result CR's next year will be BAD to UGLY (industrywide) especially if a few large hurricanes hit. Interest and dividend income will be good. Investment returns will be ??? Should stocks continue upward (very possible), FFH will easily hit 15% target. Best thing that could happen for FFH is a bad year next year for catastrophes. Yes their share price would get hit. However, they have more excess capital than most. We would then have an instant hard market and FFH would then start to see some serious growth on the insurance side.... underwriting profit, good interest and div income and investment results for a few years. You will want to be holding FFH when this happens.

I think where you live (home currency) definitely has to be a factor in ones decision making process. I live in Canada and am of the opinion that the CAN$ should do well on a relative basis. As such I am not unhappy to hold CAN$ (currently 85%) and wait for opportunities. If I was a US investor I am not so sure I would be as happy holding a large % of my portfolio in US$ and waiting for opportunities as it appears to me that the unofficial US government policy is to devalue the currency. The 15% I have recently purchased BRK-B, KFT, JNJ & WMT. If the CAN$ continues to strengthen (i.e. to parity with the US$ or better) I will continue to look to the US for well managed, large companies selling a reasonable valuations...

kawikaho, I do not say this to be cruel, but you may have a better chance finding the tooth fairy or santa claus (I have young kids) ;D

ECCO, thanks for sharing the numbers provided by FFH for ORH; 12.8% increase for one quarter is excellent! So far this year FFH earnings have been much more volatile than ORH (underperforming on the downside and outperforming on the upside). My guess is this is because they hold more risky assets at FFH and ORH has a relatively speaking more conservative holdings. Based on recent history I would expect FFH to outperform ORH in Q3. Looking at Q2, FFH BV increased 24% while ORH increased 18.5%. If ORH grew BV 12.8% in Q3 perhaps FFH increase 16% = $50 Bottom line, with all the moving parts, it is impossible to precisely caclulate the change in BV. From where I sit, my best guess is FFH BV has increased $40 to $60. Not too shabby... BV ORH FFH Dec 31 $45.37 $278.28 March 31 $43.80 $254.95 June 30 $51.90 $315.91 Sept 30 $58.56 est ???? The BULL case for buying FFH today (at roughly BV): 1.) they are very conservatively reserved (minimal PY reserve releases) 2.) underwriting is OK (one area for improvement) 3.) interest & dividend income now is VERY healthy 4.) operating earning should be solid 5.) gains on investments will continue to outperform peer group (total portfolio return of 9%) 6.) hard market is coming in next year or two (FFH will grow its top line business dramatically) 7.) market will fall in love with insurers/re-insurers We will get higher BV at the same time Mr. Market attaches a higher multiple to those earnings. My experience is those are the situations you see only rarely and are VERY profitable. And what is the BEAR case? Easy... Markets tank 30 to 40%... FFH will get punished. (Should this happen I will bet that FFH then begins a massive share buy back).

Here is my very rough calculation of what FFH should earn going forward. Please correct me as you see fit. 1.) Underwriting income (CR = 99) = $40 mill 2.) Int / Div Income (Q2 $184.5x4) = $740 Operating Income = $780 3.) Net Gains on Invest (see below) = $960 4.) Interest Exp ($152 + 30 new debt + 14 pref) = $200 5.) Corporate Overhead = $100 Pre Tax Income = $1,440 6.) Inc Taxes (28%) = $400 Net Earnings = $1,040 = $51/share Q2 BV = $315 BV Growth = $51 = 16% Interesting that FFH has 15% target and if you simply drop in some basic assumptions you get 15% growth. Where this gets a little more interesting is when you overlay what many have talked about previously. - I am assuming CR = 99. This definitely should be beaten by FFH OpCo's over time. - 9% return on investments may also be lite as the current market (lots of volatility) is in Hamblin Watsa sweet spot as they tend to trade and not simply buy and hold. - I also expect that will all subs under one umbrella there will be some restructuring that will improve results to the bottom line (over time). - insurance hard market? When is happens this could really juice FFH BV growth. - and lastly... what rabbits will Prem and team pull out of their hats next (they are there!)? - weave it all together... Q3 BV = Q2 BV $315 + $60 (my est for Q3) = $375 - cost today $355 for 15% grower with nice upside potential... pretty good buy. - and, yes, fasten your seat belts; as we learned in Q1, the ride will not be for the faint hearted! __________________________________________ Net Gains on Investment - total portfolio investments = $18,887 (p9 of Q2) = $924/share - 10 yr avg return = 9% x $18,887 = $1,770 - Net Gains = I/Div Income $740 - $1,700 = $960 Shares Outstanding = 17,564 + 2,882 = 20,446

Note: I have corrected an error in J&J in the spreadhseet and re-posted. I thought I would also take a stab at FFH earnings for Q3. I will post updates as I continue to cycle through stuff. 1.) Underwriting: should be solid (low level of catastrophes) 2.) Interest & Dividend Income: should be comparable to Q2 3.) Investment Gains: should be comparable to Q2 (upside potential) - US stocks: increased $529,000 ($807,000 in Q2) See spreadsheet below for details. - 10yr Municipal Bond Yields: look to have come down around 80 basis points (35 bp in Q2) - 10yr Corporate Bond Yields: look to have come down around 130 basis points (?? bp in Q2) I am not sure how to overlay ORH onto this so I am ingoring the ORH aquisition for now. Looks to me that mark to market BV has a chance to grow by a similar amount to Q2, which would be huge.

scorpioncapital, I read your comment: "And as the article says, nobody knows the answer to any of these questions. Really, there is only one actionable piece of intelligence I found in the article (from an investing standpoint) and that is to not invest using too much debt. Other than that, what else can you do except wait it out, whether it takes one year or ten years?" I am pretty sure that should my inverstments fall 85% from their high that I would NOT be able to hold on until they came back (i.e. for 10 years). The chance that we are in the middle of a repeat of the '29 crash and depression is the highest it has ever been since then. If it happens (85% fall in S&P) and one is fully invested they are likely wiped out financially AND EMOTIONALLY. It is this remote scenario that has stopped me from staying fully invested and it has worked very well so far...

'During the Depression, optimism was ruinous.' Things that make you go hymmmmmm. Definitely NOT the thinking today!

Here is another link that does not require sign up: www.nytimes.com/2009/10/17/business/17nocera.html

A light bulb went on for me today (kind of scary as it only happens a couple of times a year)... I have been thinking lately about what asset classes are in a bear market right now... not government bonds, corporate bonds, stocks (in general) or commodities. One thing that does look quite ugly right now is the US$. I was looking at the list of companies that FFH owns and two jumped out at me KFT & J&J. Both are up only a small amount since June 30 (KFT +5% & J&J +7%) in US $ terms. I am a Canadian investor; when you overlay currency things get interesting... Let's dial back to the March lows when the CAN$ was at about US$0.80: 1.) KFT = US$21.00 = CAN$26.25 2.) J&J = US$48.00 = CAN$60.00 Fast forward to today, where the CAN$ is about US$96.50: 1.) KFT = US$26.63 = CAN$$27.60 = 5.1% increase 2.) J&J = US$60.94 = CAN$63.15 = 5.25% increase With most global stock markets up 50% since the March lows, here we have two companies up only 5% (in CAN$ terms). Are they worthy long term investments? These two companies represent 17% of FFH's US stock holdings and BRK also holds both of these companies so I think we can assume two of the saviest investors around like them. Both sport very good dividend yields with KFT at US$1.16 = 4.4% and J&J at US$1.96 = 3.2%. My thinking is to take advantage of the level of the CAN$ to invest in some large US multinationals. Should the US$ continue to fall these companies will report stronger earnings (US$); should the US$ rise then I will get the currency gain. Should we get abroad based sell off in global stock markets there likely will be a flight to quality and multinationals and the US$ will likely do well... My financial advisor called me recently with the idea of 'putting at least some of my cash to work' and floated the idea of an 8 year TD bond with a yield of 5% (I said, thanks, but no). My thinking is to perhaps build a portfolio of 20% or so of these kinds of companies in place of holding bonds. Am I simply playing with numbers on this one???

For those interested in souce documents, here is the link to the piece by Fisher "The Debt-Deflation Thoery of Great Depressions" that is referenced in the article. I have just started and it is relatively easy, short read (21 pages). fraser.stlouisfed.org/docs/meltzer/fisdeb33.pdf

2008 = +17%; 2009 = +29% Lesson 1: importance of capital preservation Lesson 2: keep things simple (invest in what you know and what works) Lesson 3: concentration works Lesson 4: be very, very patient (given time, logical analysis will usually work out) Lesson 5: keep learning (history does not repeat exactly, but it does usually rhyme) Uccmal, I am in a similar situation as you; my investments are now large enough that I do not need to have a day job (but not large enough that I can officially say that I am retired). In the past, I have gone as high as 80% in FFH (when it fell to $70 years ago and a second time when it fell to $100 a couple of years back). I am doing my best to not be so concentrated as I no longer am comfortable with the risk/return. FFH juiced my returns in 2008; I backed the truck up in Q2 & Q3 when they were sitting on all the CDS and long US Treasury gains. My FFH gains covered over some smaller lossed from earlier in the year like SFK Pulp). In 2009, I loded up on ORH - 50% - this year. The big difference versus 2008 is I have had a number of smaller winners earlier this year. Moving forward I will continue to try and limit my best positions much more (perhaps to 25%)? Bottom line, the last three years have been great years... I look forward to the coming years. I am of the opinion that: 1.) we continue to be in a bear market rally 2.) the economy will get worse before it gets better 3.) deflation will emerge as the primary concern (over inflation) And this will keep me cautious.... I will need very fat pitches to get me to risk my capital.

No nub, thanks for clarifying... in my haste I obviously did not understand what I was reading! I will still give it a test drive for the first 12 issues as I can cancel whenever I want...

For those interested, the Economist is offering a Professional Discount Rate in Canada of CAN$15.00 for one year (12 issues and access to their on-line site). I have not subscribed before and decided to start a subscription. The get the special rate you need to go to www.economist.com/mail/ca and enter promo code 99C3 You also will automatically be signed up for their automatic renewal so will need to call in 12 months to stop service. If you are not able to access, please let me know and we can remove the post.

hy, I have been rewarded tremendously over the years with a very simple strategy of basically buying stuff that people hate (buying low) and then selling when it comes back in favour. Rarely have I held any position for more than a year and in some instances my holding period has been weeks (FFH a couple of times). Yes, March was the mother of all buying opportunites and I was fortunate enough to participate wth purchases of BRK, WFC, GE, AMEX & FFH. And yes I sold, with hindsight, too early. And thanks to ORH I have had one of my best years ever. (The icing on the cake has been the appreciation of the CAN$ (living in Canada); with it approaching $0.95 to US$ my cash now buys much more - compared to US investors - than a few short months ago when the rate dropped below $0.80.) And the past is now in the past. My thinking is now focussed on what to do moving forward. What is it that people hate today? Stocks are up 60%. Bonds yields are again approaching historic lows. Commodities have had a good run. Gold is up dramatically. About the only think people seem to hate today is the US$. Bottom line, I do not see any fat pitches (I mean really fat). Greed is again taking over. I believe the current downturn is not behind us. What if the Japan experience is in our future? What if our stock market averages are down 70% from their peak 20 years later? Buy and hold? I keep telling myself to be patient and simply wait for something I understand to go on sale.... it has worked for the last 10 years. I see no reason why it will not continue to work. (I also try and continue to learn from the past and tweak what I am doing...)

ERICOPOLY, first up, what do you think of the book? I have been thinking alot about forecasting (and forecasters). Bottom line, I think it is normally pretty unreliable. What does one do when various (reliable, respected) people are making very different calls? Things today (and the past 18 months) are about as murky as I can remember... I am in cash. Two organizations I greatly respect (FFH, BRK) are largely invested. Follow the money? I am content to wait for a fatter pitch (brought on by a broad based sell off). Time will tell if that forecast pays off...

I likely will be moving back next year, so there is my bias to bigin with... When you look at the 'metrics' real estate in Vancouver is clearly overpriced. Who knows were it goes from here. In the short term, the Olympics is clearly distorting things (construction, employment etc). I think what happens with commodities also will play a role (i.e China rocks, BC and Vancouver benefit big time). Last fall fear was in the air and the real estate market in Vancouver was a mess. My read is the worst is yet to come. There is a decent chance that after the Olympics (and unemployment skyrockets) and the US enters part two of their double dip recession, the economy & real estate market in BC get ugly again.

Berkshire increase in book value per share: 5 year = 7.34% 10 year = 6.9% 15 year = 15.98% (they has one hell of a run from 1994-1999) 6.9% is quite good given what the S&P has done. It is not anywhere near close to what Buffett produced in previous years. Oldye, Buffet is good but the law of large numbers are beginning to work against him. 10% growth in BV every year is a massive number for a company that size. Their size is also a strength. Wonderful company. I simply think that because of their much smaller size FFH has a better chance of outperforming BRK over the next 10 years.

We have had this discussion before and it went something like this: What do you prefer: blondes or brunettes? My simple answer is it depends on what your risk/return profile is: - FFH: smaller, more volatile, much less diversified, much higher risk, larger potential return over next 10 years (12 to 15% growth per year in BV is possible) - BRK: larger, less volatile, much more diversified, much lower risk, smaller potential return over next 10 years (8 to 10% growth per year in BV is possible) Assumption: my guess is equity markets will grow 4 to 6% per year over the next 10 years. And I am trying to be conservative but realistic with all my growth numbers.

I just finished re-reading the Van Hoisington Q2 report. I believe their crystal ball is closer to what we will see in the near term - deflation will re-emerge as the dominant concern for the next few years. [ftp=ftp://www.hoisingtonmgt.com/pdf/HIM2009Q2NP.pdf]www.hoisingtonmgt.com/pdf/HIM2009Q2NP.pdf[/ftp]

DR put our a 22 page report today that I really enjoyed reading... well thought out. To get the full report you need to sign up (no cost): [ftp=ftp://www.gluskinsheff.com/]www.gluskinsheff.com/[/ftp] His conclusion: "HOW TO PROTECT THE PORTFOLIO IN A FALLING USD ENVIRONMENT" Remember, this is a premise. We are just conjecturizing. But it is interesting that the dollar is the only financial metric that is at the same level today as it was two years ago, and we are of the view that the risks are high that the greenback will be on a significant downward path in the coming year. In addition, it does look as though Asia’s secular growth dynamics are intact, and that is also critical to the constructive view on commodities and the Canadian dollar. With that in mind, investors should be thinking of how to hedge or protect the portfolio against this not-so-remote possibility, namely: 1. Commodities 2. Gold 3. Canadian dollar 4. Resource sectors of the stock market 5. U.S. sectors that have high foreign exposure (materials, tech, staples, health care) 6. Canadian sectors that benefit from lower import costs (consumer stocks) but lose export competitiveness (manufacturers) 7. Canadian bonds (a higher Canadian dollar will keep inflation low, hence reinforcing positive fixed-income returns)

I have a hard time understanding where inflation will come from when you have so much plant capacity not utilized and unemployment so high and rising. To me, the risk of inflation is some unexpected exogenous shock like Japan selling Treasuries or China buying much less (possible but low probability). Living in Canada, most of my assets are in Can$ and this is perhaps my 'hedge'. I have invested in gold in the past (Sprott Precious Metals Fund) and did quite well with it. The problem I have with gold today is it does not look to me to be dirt cheap. I like to buy stuff that people hate (that is why it is dirt cheap). That is not to say that gold will not move much higher. If I bought gold today it would be because I want 'store of value' because I suspect there is a decent probability (perhaps as high as 5% that we are approaching the abyss). I cannot buy gold today at current prices because of my understanding of supply and demand for the metal. Gold for me, at current prices, goes in the too hard pile (not that I don't think about it from time to time). Does that make me a closet gold bug?