Viking

@StubbleJumper FYI, i found your communication on the tax impact of the dutch auction to be excellent. And bang on. Especially the strategic thinking. It certainly helped me understand a few things i needed to learn more about. And i am VERY happy with how it all played out. Thank you!

RBC just updated all of my accounts to reflect the dutch auction transaction. Wasn’t sure how long it would take. Pleasantly surprised it got done this quickly

When looking at market cap how much of the increase the past decade is being fuelled by just a few stocks: Apple, Microsoft, Amazon, Alphabet, Meta, Netflix, Tesla. My guess is if you net out these names the increase in market cap is not that nuts. I wonder how inflation ripping at +6% impacts historical (nominal) measures and trend comparisons. The level of inflation has to matter. I also wonder how much technology has increased corporate margins the past decade. Higher margins should result in higher earnings and then higher stock prices. Lots of companies are cheap today… perhaps 2022 will be the year stock picking matters.

At the end of the day performance is what matters. We are all very hard on Prem and team at times. And the severe underperformance from 2014-2020 provided lots of opportunities to be critical. 2021 was an amazing year. Well done team! (It should be noted it was the good decisions made over the past couple of years that drove the outperformance in 2021.) And the set up for Fairfax for 2022 looks solid to very good: 1.) hard market in insurance 2.) bond portfolio positioned for rising rates 3.) set up of largest equity positions is very good: Altas, Eurobank, FFH TRS, India, commodity exposure (Stelco, RFP, ATCO) After 2 energy stocks (CVE and SU) Fairfax is my third largest position (it was the largest by far before the dutch auction).

More good news for oil and gas… 13% of Germany’s power needs will be vaporized by the end of 2022. Poof. Gone. Gas is now the new green energy. And Russia is our new most trusted best friend. Got it! ————— Clearly i am an idiot. Given the importance of climate change and reducing greenhouse gasses ASAP i missed the memo that said coal was a far better option than nuclear. Coal represents 51% of all electricity generation? Germans are so rational. ————— Germany shuts down half of its 6 remaining nuclear plants - https://abcnews.go.com/International/wireStory/germany-shuts-half-remaining-nuclear-plants-82016348 “But the German government said this week that decommissioning all nuclear plants next year and then phasing out the use of coal by 2030 won’t affect the country’s energy security or its goal of making Europe's biggest economy “climate neutral” by 2045. “By massively increasing renewable energy and accelerating the expansion of the electricity grid we can show that this is possible in Germany,” Economy and Climate Minister Robert Habeck said. Renewable energy sources delivered almost 46% of the electricity generated in Germany in 2021. Coal accounted for more than 51%, while nuclear power provided over 13%, according to the Fraunhofer Institute. Several of Germany's neighbors have already ended nuclear power or announced plans to do so, but others are sticking with the technology. This has prompted concerns of a nuclear rift in Europe, with France planning to build new reactors and Germany opting for natural gas as a “bridge” until enough renewable power is available, and both sides arguing their preferred source of energy be classed as sustainable.”

No one is ready for $100 oil let alone $125. Everyone has been ‘conditioned’ the past 8 years that rising oil prices will ALWAYS result in spiking supply and then, in short order, much lower oil prices. So persistently high and rising oil prices simply cannot happen; only an idiot would suggest otherwise (that is how strongly held the belief is). Of course, past trends go on. Until they don’t. And when the trend changes people only slowly update their thinking. Re-wiring strongly held beliefs (even when they are wrong) takes time. But the facts can only be ignored for so long. Has the oil market structurally changed? How has ESG changed oil on both the demand and supply side? Is the future of US shale different from its recent past? Is ‘shareholder return’ the new religion with oil company executives? ————— After all, we all know WITHOUT A DOUBT lumber prices can never hit $1,700. And steel prices can never hit $1,900. Impossible. ————— Bloomberg interview Dec 2 with Malek from JPM - if you want to understand what the details of the bull market case is for oil then listen to the first 8 minutes of this podcast. - https://www.bloomberg.com/news/audio/2021-12-02/surveillance-150-oil-with-jpmorgan-s-malek-podcast ————— JP Morgan sees oil prices surging to US$125 in 2022 - https://ca.proactiveinvestors.com/companies/news/967631/jp-morgan-sees-oil-prices-surging-to-us-125-in-2022-967631.html “Oil prices will surge around 66% to US$125 per barrel in 2022, according to JP Morgan, which sees the crude market at the start of a new super-cycle’. Crude could reach as high as US$150 per barrel by 2023, the US bank said. “OPEC+ is back in the oil market driver’s seat,” JPM analyst Christyan Malek said in a note. “The prisoner’s dilemma is over”, the analyst added (referring to the scenario in game theory where decision-makers in a group are incentivised to act against the broader interest of the group).“ ————— Longer article laying out Malek’s logic: - https://www.cnn.com/2021/11/29/business/gas-prices-oil-jpmorgan/index.html “Importantly, JPMorgan is not calling for oil to trade at $125 a barrel for all of 2022. Instead, the bank is predicting crude will average $88 next year and "overshoot" to $125 at some point. Likewise, JPMorgan sees Brent averaging $82 in 2023 but overshooting to $150.”

agreed. I also remember Sanjeev banging the table very loudly on Fairfax.

My traditional investment portfolio returned 60% (59.8%) for my 2nd best year in % terms and best year (by far) in total $. Average return the past 5 years is spot on 20%. Average return for the 4 years from 2017-2020 was 10%. So 2021 was a big outlier. Best year in % terms was 2003 at +87%. Third best year in % terms was 2007 at +47%. How are returns in 2021, 2007 & 2003 related? Fairfax was the driver all three times. Crazy. So for me Fairfax has been the gift that keeps on giving over the decades (guess I am getting old...). I backed up the truck with Fairfax in Nov of last year and the run up in shares to March/April was amazing. Steel (mostly Stelco), lumber (IFP, WFG and RFP at different times), oil (Suncor), Fairfax India and Atlas also contributed. Fairfax announcing the Dutch auction was an unexpected gift to end the year (spiking Fairfax 20% to finish the year). From March right through to year-end I was able to take advantage of the volatility in FFH and pretty much everything else. A great recent example was Resolute. Mid Nov lumber future started spiking because of the flooding in BC. Lumber futures kept going up right into year end. RFP stock was slow to respond. So I bought some early in Dec and sold Friday for a 25% gain. I rolled the proceeds into Cenovus. I was a trader in 2022. Lucky. Opportunistic. But I will take it. But the big reason for my outperformance was concentration. There are times when an opportunity gets very asymmetrical: low downside risk and big upside potential. That was Fairfax in Nov of 2020. That was also Fairfax in 2007; we all KNEW the CDS gains were coming... The Dutch auction announced in Nov 2021 was another asymmetrical 'bet' (for those holding shares in tax free accounts), although it had a lower (capped at US$500) return. ---------- I also sold my house with the proceeds arriving in July. That new part of my portfolio returned 9%. Solid 6 month return. ---------- This year I tracked 'traditional investment portfolio' and 'house proceeds' separately. Starting 2022 it will all be one bucket. ---------- At the start of each year my goal is to earn 6-8%. No pressure. Keep is simple. And then be opportunistic as the year unfolds. Every year Mr. Market offers up some great opportunities. And posters on this board are great at pointing them out... Patience is key. Another is being inquisitive and open minded (love Druckenmiller) - and also pulling the trigger when the stars align ( @Gregmal is my Jiminy Cricket here).

Here are Dec 31 numbers for Fairfax's equity holdings. My math says we should see mark-to-market gains of about +$320 million = +$12/share (Fairfax owns much more stuff than I track). The Associates/Consolidated Equity holdings are about ($100) million = ($4)/share. Movers: - FFH TRS +$174 - RFP +$103 - Atlas ($101) + warrants another ($25) - CIBank +$84 - Eurobank +$82 Bottom line, Fairfax's returns from the equity holdings in 2021 were stellar (among the best ever). Prem is going to enjoy writing his letter for the annual report this year (and he should). Lot's of very good things going on under the hood. The set up for 2022 looks promising. Well done Fairfax! Fairfax Equity Holdings Dec 31 2021.xlsx

What a crazy couple of years! Happy New Years to all board members. The investment ideas / discussions this year has been stellar (as usual). I learned lots (hate that when it happens… ). And made some extra $ along the way. Hopefully Fairfax has their AGM in person this year and i have a chance to say ‘thank you’ in person. Sanjeev, thanks for continuing to run this board - well done! Best of luck to everyone in 2022. Health and prosperity!

There is a reason the current hard market is running longer than most thought it would. Perhaps we see it extended through 2022. Why? 1.) inflation is ripping. This has to be resulting in costs that are (and will be higher) than expected when the policy was written. 2.) catastrophe losses remain elevated (partly tied to inflation) 3.) bond yields remain stubbornly low Most companies are saying that price increases are running in excess of current loss cost trends. This has been the case for the past couple of years. But as expected future costs go higher yet it is reasonable to assume more price increases will be needed to stay ahead of the cost increase trends. If companies are correct we should see a slowly improving CR in 2022. As long as the hard market continues i am not concerned. ————— My guess is insurance companies are rapidly embracing technology to model loss trends. As with other industries this might be the variable that separate the winners from the rest of the pack.

Well the fat lady is done singing… Now are there any rules of thumb for how many days it will take for the transaction to actually show up in our accounts? ———— Fairfax Announces Completion of Substantial Issuer Bid - https://www.fairfax.ca/news/press-releases/press-release-details/2021/Fairfax-Announces-Completion-of-Substantial-Issuer-Bid/default.aspx TORONTO, Dec. 29, 2021 (GLOBE NEWSWIRE) -- Fairfax Financial Holdings Limited (“Fairfax” or the “Company”) (TSX: FFH and FFH.U) announces today the completion of its substantial issuer bid initially announced on November 17, 2021 (the “Offer”). Fairfax has taken up and paid for 2,000,000 subordinate voting shares (the “Shares”) at a purchase price of US$500.00 per Share (the “Purchase Price”). …Fairfax has made payment for the Shares validly tendered by delivering the aggregate purchase price to Computershare Investor Services Inc. (the “Depositary”) in accordance with the Offer and applicable law, and payment to tendering shareholders will be effected by the Depositary. Any Shares tendered and not purchased, including Shares invalidly tendered, will be returned to shareholders as soon as practicable by the Depositary.

Well… what happens when you have heavy buying of shares at a time when volumes are usually super light? +7% move in a couple of hours ($12.74). I guess this is why we all say Happy Holidays

@Xerxes i am not convinced the crazy discount we see with Fairfax India shares today is permanent. Now I have no idea what the catalyst will be to close the discount. Or timing. I do expect Fairfax India to be very aggressive with share buybacks. Regardless, buyers of Fairfax India at under US$12 should be able to earn an acceptable return (10-15% per year moving forward). And if it closes the valuation gap then returns would likely be exceptional (+25%). So i will be happy to re-establish a position in Fairfax India with some of the proceeds from Fairfax from the dutch auction.

So what are board members best investment ideas to make $ in 2022? So what can a board member buy on Monday and expect to earn a reasonable return in 2022 (which i define as +10%). It can be a specific stock. Or a sector. Please include a couple of bullet points as to why you like the idea. To get things started my highest conviction idea today is oil. Why? I think supply is more constrained than usual (due to ESG). And i think demand will continue to grow. I am also thinking we could see travel explode this spring and summer when we get to the other side of Omicron. Oil companies are very profitable with oil at US$70. Given how tight the supply/demand equation is today we could see oil at US$100 in 2022. My picks would be a basket of Canadian Natural, Suncor and Cenovus (there are lots of good choices); i am picking Canadian companies given i live in Canada and most of my portfolio is in CAN$. - Lyn Alden: December 2021 Newsletter: The Fifth Age of Oil: https://www.lynalden.com/december-2021-newsletter/ ————— Lumber/OSB is also looking very interesting. This is a play on hot housing market in US and it lasting for years. If total US new housing starts grow in 2022 versus 2021 then this becomes a very good 1 year trade. IF lumber futures stay over US$1,000 into Q1 then this also could become a very good short term trade. My favourite pick is West Fraser (due to its OSB business which is more supply constrained than lumber and more levered to new housing starts). But a basket approach should also work. ————— Steel is also looking very interesting. Steel prices are coming down a little. Seasonal or buying opportunity? If steel prices average over US$1,000 in 2022 steel companies will make lots of money. Lots of secular tailwinds for steel: shift to electric vehicles, green power, infrastructure, return of manufacturing to US etc. On the supply side we have what looks like we now have an oligopoly. My favourite picks are Stelco and Cleveland Cliffs. Stelco: it will be interesting to see what Kestenbaum does with the cash hoard in 2022. Cleveland Cliffs: it will be interesting to see what Gonsalves will do in 2022. ————— Inflation is crazy high as we start 2022. Where inflation goes in 2H 2022 will super interesting. I like having some exposure to commodities in my portfolio. ————— In terms of specific companies, i continue to like: - Fairfax at US$500 (just not as much as US$400). Insurance continues to be in a hard market. Fairfax BV is likely around US$600. - Atlas at US$14. As new-build deliveries happen we should see EPS growth of 15-20% every quarter for the next couple of years. - Fairfax India at US$12. BV is likely +$19 (with stocks in India selling off in Q4). India economy should grow nicely next couple of years. We likely will see another Dutch auction from Fairfax India in 2022.

Well it certainly will be a Merry Christmas for Fairfax shareholders who were able to tender some shares. Crazy to think Fairfax shares were trading at US$400 in early November. Given how the overall stock market has traded the past couple of months the tender certainly was a great catalyst for Fairfax’s share price. Not sure why Fairfax shares are up big today? @StubbleJumper thank you very much for your insights into how the Dutch auction would play out - very helpful

“May the good times and treasures of the present become the golden memories of tomorrow. Wishing you lots of love, joy, and happiness. Happy Holidays!” …the great COBF train (called the Sanjeev Express) keeps chugging along year after year… thank you to everyone!

Prem is certainly supportive of the structural changes to the economy Modi in India and Mitsotakis in Greece are enacting and their benefits to drive higher economic growth (by attracting more foreign capital). I admit i do not understand India or Greece very well and how their economies work. However, what little i do know both countries appear to be moving to a more capitalist economic model and i applaud that (as an indirect investor in both countries). Politically, India has a democratic model/tradition given former British rule. However, economically, the country had a long history of strong ties with the former Soviet Union. Perhaps Modi shifting India more towards capitalism is a big deal. Prem would know as he is from India. - https://en.wikipedia.org/wiki/India–Russia_relations Same with Mitsotakis in Greece: the country’s political and economic history is VERY different than what we have in the US or Canada. Post WWII there was a real possibility Greece would go communist (that is what a substantial portion of its population wanted at the time). - https://en.wikipedia.org/wiki/Greek_Civil_War Shifting a country from a socialist to a capitalist economic model is not easy. Capitalism is not the ‘natural’ way of things.

I do find John Campbells YouTube updates to be quite good. Rational. Data driven. Informative and insightful. And he’s not afraid to say ‘don’t know yet’.

At the other extreme we have Cathy… Despite the big plunge, Cathie Wood sees her plan returning 40% annually in the next 5 years — here are Ark Invest’s latest buys - https://ca.movies.yahoo.com/despite-big-plunge-cathie-wood-173500607.html Quote of the day: “When we go through a period like this, of course we are going through soul-searching, saying, ‘Are we missing something?’” Wood told Bloomberg last week.

The Nasdaq was trading Sept of 2018 at 8,050 (a record at the time). In Feb of 2020 it was trading at 9,700 (a record at the time). Today it is trading at 15,180. Correction over? No idea.

Crazy thought for the day: is a couple years of high inflation not just what is needed right now? (i ask this tongue in cheek). Is that not how a government/country solves a way, way too much debt problem? (At the same time paying an interest rate under 2% across the curve is just an added bonus). After all, isn’t deflation the real enemy of too much debt? Now, yes, inflation is effectively a hidden tax especially to those who do not own assets (which are shooting higher) and those who own fixed income assets (‘earning’ large negative real yields). But the real value of all that debt (government, corporate and consumer) is dropping and fast. The rub, of course, is when those who do not own assets or those who own fixed income catch on to the real game that is being played. Too much of a good thing and… off with your head ————— https://www.investopedia.com/articles/insights/122016/9-common-effects-inflation.asp

@StubbleJumper my assumption is you hold your shares in US$ accounts? I took your suggestion and contacted RBC and they would transfer and any shares i wanted to tender from Can$ to US$ side - they need 1 day to settle the move (plus 2 more days to capture my instructions regarding the Dutch auction). I am waiting to see what happens with the Fed on Wed before making any final decisions.

The central problem we have today is historical analysis/numbers don’t really apply. And that is because the pandemic is causing fundamental changes to the economy and society. And the pandemic will remain the key driver for the foreseeable future (next couple of years). - massive changes to consumer behaviour: goods vs service; stay at home - demand for single family homes etc - massive changes to labour force participation = fewer workers - massive supply chain disruption We also have a few other super important structural changes going on: - accelerating move to ESG: electric vehicle revolution plus more - recognition of China being a competitor/threat to West - shift of production back to US - China just starting to deflate its property bubble And we have had massive, unprecedented intervention from the Fed for the past 10 years. To the point the Fed even does not understand how the unwind of its intervention will impact the economy and financial markets. Bottom line, there is NO playbook for what is happening right now. History provides little guidance. Investors need to accept what they do not know. Be rational. And be prepared for most of the experts to be off base. My ‘solution’ is pretty simple: to carry a higher than normal cash balance and wait for volatility. @Gregmal will be my Jimminy Cricket… sitting on my shoulder telling me to buy…

Today a Canadian can get a 5 year fixed rate mortgage for about 2.75%. Today in Canada inflation is running at +5% and will likely remain elevated well into 2022. Its not unreasonable to assume inflation will average +3% over the next 5 years. With mortgage rates well under the expected rate of inflation is it not sensible to carry a very large mortgage? Your cost to own will be far less than what it would cost to rent (a comparable home). AND it is highly likely the nominal value of your property will be significantly higher in future years (likely increasing at least at the headline rate of inflation). The Fed is in the classic prisoners dilemma. Clearly inflation is a big problem and something needs to be done. AND the globe has way, way too much debt - so raising interest rates will tank financial markets, sentiment and then the economy. The 10 year bond yield at 1.42% is telling everyone something loud and clear (Fed policy error is coming which will tank the economy). We will see who is right - the bond market or those piling into housing There is also a decent chance that both could be right at the same time (house prices move higher AND long bond yields stay crazy low).