Viking

There look to be lots of cross currents currently swirling around: 1.) year end window dressing by funds 2.) low volume due to Christmas holidays 3.) year end tax loss selling Bonds again are at multi-year lows and stocks continue sideways... I wonder if Europe is burning people out, given all the noise since Sept and lack of progress. Perhaps time for the patient to receive a little shock therapy (complements of our hedge fund friends)... :)

A couple of years ago my neighbour's kid was selling boxes of chocolate covered almonds to raise money for his hockey team. The items were to be sold for $2.00 each. He sold them for $5.00 each, pocketing the difference (there was no selling price on the chocolates). Until his parents found out. They made him go around the neighbourhood and return the money to all families. Yes, my wife had bought a box for $5.00! This kid has the entrepreneurial spirit and moral compass to be a standout on Wall Street... (And we still laugh our asses off over some of the creative things this kid has done over the years.)

Regarding scarcity, I think the example you set as parents is important. We have everything we need in our house; however we are never 'early adopters' when it comes to the next must have gadget. We buy one nice thing for the house each year (this year it was a big screen TV). We will go to a few garage sales during the summer. Each kid gets a set amount to spend ($2.00 when they were really young). If they spend it at the first stop they are done for the reat of the day regardless of what they find later in the day. This has been a great learning vehicle for the kids. My kids play hockey/ringette and they still get used skates every year from the local used skate shop or Craigs list (mind you, I know skates; we find $300 Graf's for less than $100). Their equipment bags need to be replaced. My oldest daughter recently got a great desk from Craig's list (she knew it was used). We can afford to buy them the best brand new but do as we do not want them to develop an 'instant gratification' mind set. This also teaches them how to be smart with how they spend their money. We talk about money and 'business' stuff but in a way that is relevant to them to start to get them familiar with concepts. I used to work for Kraft Foods and Saputo; their products are all over the house and make for some fun conversations (and lots of interesting questions). When they are older I want to have them start to invest a small chunk of money in companies they are interested in. Learning math is also very important in our house (along with reading & writing). My wife spends extra time with our two daughters to ensure they are learning all basic concepts (as many girls at a very young age decide math is not cool and fall behind). My wife also plays lots of games with the kids... this may be one of the best ways to help teach them math stuff. Bottom line... be a good role model, make it relevaqnt to them, work your ass off to help them... and then hope that Buffett is wrong when he says (about value investing anyways) that you are likely born with it (or not). I have now been managing our family investments full time now for about 5 1/2 years. By far the best outcome has been the quality time both my wife and I have been able to spend with our three kids (starting when they were young). We have been able to raise them how we want. We just finished parent/teacher meetings and all three are excelling in school; they are also great athletes. Most importantly, they are good people. The quality of our family life is very good; and my wife and I both recognize that we are living the dream.

My immediate reaction after hearing this news was not positive. I can understand why Buffett may feel this is needed. What if Howard Buffett exercises poor judgement in the years after W Buffett is gone? I will admit I do not understand what the purpose of this role is. And H Buffett may be the most qualified person to fill this role. Buffett has been doing MANY things the past year or two to set BRK up after he is gone. Seems to be some urgency (more so than in the past). Interesting.

For those who have been following this here is the link to a Dec 8 interview on Bloomberg. I like it because it was 8 minutes and they actually got into a little detail. Interesting comment: he said most forcasters today are calling for a 'muddle through' economy. He said this type of economy never actually happens; you always get growth or recession. http://www.ritholtz.com/blog/2011/12/ecris-achuthan-u-s-economic-outlook-labor-market/ Europe is in recession; the US looks to be slipping into recession and China looks to be slowing. Interesting times...

Racemize, I have followed FFH for years and it has been as high as 70% of my portfolio (2007 & 2008). The reason I held it in the past was becuase it was dirt cheap (selling at less at P/BV of less than 0.8) and their investment portfolio was positioned perfectly to benefit from the 2007/2008 credit crisis (via their holdings of CDS). I have never held FFH because I think they are great underwriters. I do not follow FFH as closely now as I have in the past. I do not own them today because: 1.) stock is not crazy cheap 2.) investment portfolio has increased in complexity and looks positioned for breakeven should things get ugly again 3.) underwriting, while not terrible, is not yet in the same league as others I am not saying FFH will not deliver solid to great returns for investors moving forward. But more than other insurers FFH looks to me to be a 'bet on the jockey' type stock with outperformance (of other insurance companies) tied more to investment results more so than underwriting results. Given how defensive the FFH investment portfolio is I would rather, in my portfolio, sit on cash and deploy myself during market sell offs directly in companies like WFC, DELL etc. FFH will benefit from an improving insurance pricing environment moving forward but I would expect the better underwriters to improve their results more than FFH (who relies more on investment gains to drive earnings). I like BRK, WRB and ACE as I have followed for years I think they are all well run insurers, leaders in their respective markets and their insurance businesses should do very well as insurance markets improve. I don't think the stocks are crazy cheap today (like they were a year ago). And I am not looking to back up the truck. I am just trying to identify sectors and companies that I like that I will target should markets sell off aggressively again in the coming weeks and months (should Europe disappoint and/or the US look like it is going into a recession).

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.