Viking

Some good news... ——————————— ...Ms. Home is part of a growing army of volunteers who have pushed Britain’s vaccination effort harder and faster than anyone expected. Hundreds of village halls, recreation centres, churches and community clinics have been turned into makeshift vaccination sites and tens of thousands of volunteers have manned phone banks and gone door-to-door to make sure that as many people as possible get their jab. ...If the current pace continues, government officials believe that everyone over 50 – roughly 32 million people – could receive their first dose by the end of March and that all adults could be vaccinated by the end of June, three months earlier than expected. Britain’s mass volunteer effort sets blistering pace in COVID-19 vaccination effort - https://www.theglobeandmail.com/world/article-mass-volunteer-effort-puts-uk-ahead-of-schedule-on-vaccine-rollout/

Cigarbutt, you make a very good point. The drop in bond yields is the ‘in plain sight’ big issue for insurers, given it is relentlessly driving investment earnings lower. The ‘out of sight’ potentially big issue for insurers is being under-reserved. Perhaps both explain the current hard market and also why the hard market may last for some time (a couple years). Fairfax in recent years has had a pretty good record with reserve releases. Lets hope it continues in the coming quarters/years. This is something i look at when they report. I think Q4 is when they do a complete review (so if there are issues this is when they will likely surface). One area i will watching in Q4 is runoff. Now that the good part of runoff has been sold (Riverstone) it will no longer be possible to hide the increase to reserves from the ugly part (asbestos). I think last year in Q4 they took a $200 million hit. I would not be surprised to see another big hit this year. Obviously, this is just a guess on my part.

Yes, i would love to see continued stock buybacks in Q4 (hopefully they took out another 2% of shares). Brk, Apple and BAC all flush with cash and buying back meaningful amounts of stock all at the same time. Has to benefit shareholders of BRK at some point in time :-) PS: yes, i hope BRK continues to sell Apple shares, given current valuation and position size. The issue is what to do with the proceeds - we keep circling back to this core ‘high class’ problem of BRK holding (apparently indefinitely) too much cash!

The key catalyst for Berkshire stock is what Buffett does with the cash hoard of $145 billion over the next year. If he is able to put a significant amount to work this will drive the stock price (improving both earnings and sentiment in shares). Immediately after the pandemic broke out he got extremely risk averse. Not only did he not buy anything he sold out of some positions like airlines. His commentary during the AGM was pretty dour. And preservation of capital for long term shareholders was clearly his core objective. As 2020 progressed it appears Buffett got more comfortable with the pandemic. More optimistic. And you could see this with his purchases as the year progressed: - Japanese stocks - big pharma - meaningful buybacks of BRK stock The new news (November) is we now have vaccine’s approved and actually in arm. It makes sense that this should help make Buffett even more comfortable/optimistic and further shift from capital preservation to more of a risk on approach. So i think there is a good chance we may start to see the cash hoard decrease in size each quarter moving forward: - BRK stock buybacks? - pipelines? - lots of cheap opportunities here; in BRK circle of competence - energy? - other international? - other domestic US?

Nwoodman, thanks for posting. Can someone explain what a new $1.9 billion total co valuation for Digit Insurance means for Fairfax? Does Fairfax still own 49%? Will this new, much higher valuation for Digit flow though to BV for Fairfax when Q1 report comes out? Fairfax certainly has a lot of significant tailwinds. The news just keeps getting better :-) Here is a review of Fairfax’s ownership in Digit from 2019 AR. Page 68: On December 23, 2019 Go Digit Infoworks Services Private Limited (‘‘Digit’’) entered into definitive agreements whereby its general insurance subsidiary Go Digit Insurance Limited (‘‘Digit Insurance’’) subsequently issued approximately $91 (6.5 billion Indian rupees) of new equity shares primarily to three Indian investors. This transaction valued Digit Insurance at approximately $858 (61.2 billion Indian rupees) and resulted in the company recording net unrealized gains on investments of $350.9 on its investment in Digit compulsory convertible preferred shares. The company also holds a 49.0% equity interest in Digit as described in note 6. Page 72: On December 23, 2019 Digit entered into definitive agreements whereby its general insurance subsidiary Digit Insurance subsequently issued approximately $91 (6.5 billion Indian rupees) of new equity shares primarily to three Indian investors. This transaction valued Digit Insurance at approximately $858 (61.2 billion Indian rupees) and valued the company’s 49.0% equity interest in Digit at $122.3 at December 31, 2019. The company’s 49.0% equity interest in Digit is comprised of a 45.3% interest in Digit common shares and a 3.7% interest through Digit compulsory convertible preferred shares that are considered in-substance equity. Foreign direct ownership in the insurance sector in India is limited to 49.0% and as a result the remainder of the company’s investment in Digit compulsory convertible preferred shares are recorded at FVTPL as described in note 5.

Eventually yes, but what really matters now is that the stock price sticks. I think it is true to say that equity gains = capital = more underwriting in a hard market = more subsidiary profit = more dividend capacity to holdco = holdco deleverage etc. If so, the simple fact that their holdings are going up unlocks a lot of good things. Definitely a big piece of good news, and as you said, if the BB price is sustainably higher FFH could write more business. My concern is that the BB YOLO effect could end up being a short-term phenomenon. At some point, reality must kick in for some of the tech stock YOLO investments. Will that be six months from now? A year? I don't know, but at a certain point I would be much happier to see cash or some other more predictable investment on FFH's balance sheet and not such a large slug of BB. But, we now have a happier "problem" today than what has prevailed for the past decade. SJ A good example of this is Quess. It was trading at nosebleed levels for a while (then it was still embedded in Thomas Cook India). A small portion (i think it was 10%) was cashed out for something like $100 million. Years later the stock is trading down more than 50%. Looks like a great company. But selling more aggressively at peak prices makes some sense. Especially when you have other very good uses for the cash. Imagine what Fairfax could do with the gains from a Blackberry sale... grow insurance op co’s in hard market, take out shares well below BV; reduce debt; buy another chunk of Allied from minority holders.

Resign from BB's board of directors, and then begin to trim the BB position as the stock price rises? I know, I know, it's a crazy idea! SJ If BB continues even higher is there anything FFH could do in the options market to lock in a certain price. Giving them some time to exit the whole investment? I know, i know... no more derivative bets! :-)

BRK. Decided it was time to lock in some FFH gains from the past 8 weeks (still own a bunch); still like FFH, just not as much as when it was 20% cheaper. Happy to add BRK at $233.

So why so bullish on BRK? Is it absolute value? Relative value? Cyclical play? What are a catalysts to get the stock moving? More buybacks? Mystery new purchase? Buffett finally putting cash hard to work? One headwind is Apple valuation (very expensive and could come way down if we get a sell off). Do you really like financials? I do like BRK; it looks cheap... is it crazy cheap (to warrant big overweight)? Just trying to understand...

Regarding BB, the spike in price clearly ‘efficient market theory’ at work :-) Now if it keeps going higher is there something Fairfax can do to take advantage?

Fairfax has been moving up pretty steadily each day since Jan 1 (9% total). Chug, chug, chug... Many of their largest equity holdings are also up nicely since the start of the year: Atlas, Blackberry (what’s up with the 17% move today?), Stelco, many of the India holdings etc.

Here is an update on J&J. We need a few more manufacturers to be successful/approved. Johnson & Johnson confident of March rollout for its COVID-19 vaccine, still aims for 1 billion doses in 2021 - https://www.theglobeandmail.com/business/international-business/us-business/article-johnson-johnson-confident-of-march-rollout-for-its-covid-19-vaccine/ Johnson & Johnson is on track to roll out its single-shot coronavirus vaccine in March, and plans to have clear data on how effective it is by the end of this month or early February, the U.S. healthcare company’s chief science officer said. Dr. Paul Stoffels in an interview on Tuesday also said J&J expects to meet its stated target of delivering 1 billion doses of its vaccine by the end of this year as the company ramps up production. The New York Times reported earlier on Wednesday that J&J was experiencing manufacturing delays that would reduce the number of doses initially available. Stoffels declined to say how many doses would be ready to go into people’s arms in March, presuming it receives emergency authorization from the U.S. Food and Drug Administration. “We are aiming for 1 billion doses in 2021. If it is a single dose, that means 1 billion people. But it will be in a ramp-up throughout the year,” Stoffels said.

I saw the stats for India and wondered why they were such an outlier (in a good way). The article suggests there could be very good news coming on the treatment front (separate from the vaccine front). Encouraging as it allows us to tackle the virus on multiple fronts. Still so much we do not understand...

Gary, nwoodman posted a link to a 100 page report that provides the best overview of the insurance industry that i have read. Perfect for the non-insurance type like me. It answers your question. The link to his post is below. - https://www.cornerofberkshireandfairfax.ca/forum/fairfax-financial/fairfax-2020/msg444399/#msg444399 The simple question is not so simple. The hard market that followed 2001 allowed FFH to increase premiums significantly especially at OdysseyRe (see page 18 slides) and, by 2005, overall float had increased by 50%. FFH was still swallowing reserve deficiencies of the past but the best was yet to come with the buildup leading to a capital scarcity episode for which they were ready for. https://s1.q4cdn.com/579586326/files/2011%20AGM.pdf Is the simple answer: as long as rate increases > loss cost trends then, given time, we should see better EPS? (All else being equal.) It takes time as written premiums become earned premiums. From nwoodmans link, the report estimates 75% of EPS for P&C is investments returns; 20% is renewal and 5% is new business. Only 25% of earnings for most insurance companies is underwriting? Plummeting bond yields has got to be killing 75% of earnings of most P&C companies. For the 25% bucket to make up this decline we are going to need to see big price increases or large price increases for insurance over many years. Perhaps this is the biggest reason we are hearing the hard market may run for years. For Fairfax, they have underperformed on the investing side for so many years the bar is now very low. Improving CR and better investment results happening at the same time would definitely juice the stock price. The set up for 2021 is encouraging.

FFH. Shares continue to trade at a historically low valuation band (P/BV). Lots of tailwinds. 1.) underwriting results are looking up - hard market has arrived 2.) investment results are looking up - Fairfax’s equity portfolio is heavy in cyclicals (Stelco, Resolute, Eurobank ) which are spiking; also heavy in emerging market stocks (Quess, Fairfax India, IIFL quartet) which are increasing nicely; turnaround plays like Blackberry are also spiking; Atlas is chugging away. Digit is chugging away. 3.) asset sales: risk on sentiment should help Fairfax accelerate number of divestitures in 2021 - proceeds of $750 million from Riverstone UK sale coming in Q1 4.) $10 dividend (3% yield) is coming Jan 21 Key risks: total debt/growth in debt during 2020; status of final mystery short position; management doing something unexpected/dumb.

Gary, nwoodman posted a link to a 100 page report that provides the best overview of the insurance industry that i have read. Perfect for the non-insurance type like me. It answers your question. The link to his post is below. - https://www.cornerofberkshireandfairfax.ca/forum/fairfax-financial/fairfax-2020/msg444399/#msg444399

Further evidence that the insurance industry is in the midst of a hard market. Looks like reinsurance is starting to participate. January Renewals Saw Some of Sharpest Price Hikes in Recent Years: Howden - https://www.insurancejournal.com/news/international/2021/01/06/596323.htm Lower investment yields, adverse catastrophe loss development, higher loss cost trends, concerns over climate change, and, of course, the pandemic coalesced to bring some of the sharpest price increases in recent memory during the Jan. 1 reinsurance renewals, according to Howden, the London-based insurance broker. “The result is not only significantly higher pricing, but also more restrictive terms and conditions,” said Howden in a report titled “Hard Times. How a pandemic, record low yields, and climate-driven cat losses have changed the (re)insurance market.” The report’s key findings on reinsurance renewals include: - Howden’s Global Risk-Adjusted Property-Catastrophe Rate-on-Line Index rose by 6% at Jan. 1, 2021. This was higher than the flat outcome of 2020, and the biggest year-over-year increase in over a decade. COVID-19 loss experience, along with yet another hyperactive natural catastrophe year, were key inflating drivers. - Programs in North America led the charge at Jan. 1, 2021, with an average rate-on-line increase of 8.5%. Pricing pressure was more subdued outside the United States. - A significant turning point was reached in Europe where with rate rises in the low-to-mid-single digit range were seen. - Another year of constrained capacity in the retrocession market saw Howden’s Risk-Adjusted Non-marine Retrocession Catastrophe Rate-on-Line Index rise by 13%. Four consecutive years of price increases have seen the cost of retrocession protection return to levels last recorded in 2012/13. - Casualty reinsurance rates-on-line, including adjustments for exposure changes and ceding commissions, rose by 6% on average at Jan. 1, 2021. - Rising rates on underlying business, especially in the U.S., mitigated pressure on ceding commissions somewhat, although outcomes varied depending on book performance. Reinsurers were resolute in pursuing higher pricing for excess-of-loss programmes, although there was again some degree of differentiation to account for portfolio characteristics and profitability.

If backed up by science, this could be another game changer :-) Moderna CEO says COVID-19 vaccine protection may last years - https://www.cbsnews.com/news/covid-vaccine-last-years-moderna-ceo/ Moderna's CEO said the company's new COVID-19 vaccine may prevent infection for years. While speaking at a virtual event by Oddo BHF, a financial service group, Moderna CEO Stephane Bancel said the once-believed "nightmare scenario" that the vaccine won't work is now out the window. "We believe there will be protection potentially for a couple of years He explained that the "antibody decay generated by the vaccine in humans goes down very slowly," Reuters reports.

John, as others have posted, it was very sad to hear of the passing of your brother. I have two and can’t imagine what you are going through. Our thoughts are with you :-)

January and February should see lots of new news regarding the vaccines. Hopefully we get good news from J&J and their trial. For those vaccines who are approved the question is how much can be produced and how fast. We should see lots of upwards revisions to supply numbers as highly motivated governments move to support incremental production. The latest example is Europe and BioNTech. Very encouraging. —————————— BioNTech founders warn of COVID-19 vaccine supply gaps - https://www.theglobeandmail.com/business/international-business/article-biontech-founders-warn-of-covid-19-vaccine-supply-gaps/ The United States ordered 600 million doses of the BioNTech/Pfizer shot in July, while the EU waited until November to place an order half that size. After publication of the interview, BioNTech said it was in talks with Brussels on boosting output “We are in productive discussions with the European Commission on how to make more of our vaccine in Europe, for Europe,” a spokeswoman said. NEW PRODUCTION BioNTech hopes to launch a new production line in Marburg, Germany, ahead of schedule in February, with the potential to produce 250 million doses in the first half of 2021, said Sahin.

With a minority government the Liberals will not be taxing capital gains on principal residence sale. If it happens it will be VERY unpopular. So if it happens it will be years down the road when the government is broke and is desperate. Canada, at the Federal level, is not in terrible shape (yet) from a total debt outstanding perspective. Now if we get a few more $350-$400 billion fiscal deficits per year moving forward this will change.

That comment made my day :-) I am actually thinking of doing the opposite. Gotta love how smart people can look at the exact same situation and see two completely different solutions / ways forward. No right or wrong. The key is fit. Finding a solution that works for you. Best of luck! you are thinking of exiting real estate (in Vancouver?) and entering the stock market? i’m definitely not smart financially. thx to this board (all the contributors and educators and the administrator Sanjeev of course) — i have had some fun while keeping my capital and some :)) Gary, I posted my reply to the real estate thread (Garth Turner :-)

That comment made my day :-) I am actually thinking of doing the opposite. Gotta love how smart people can look at the exact same situation and see two completely different solutions / ways forward. No right or wrong. The key is fit. Finding a solution that works for you. Best of luck! you are thinking of exiting real estate (in Vancouver?) and entering the stock market? i’m definitely not smart financially. thx to this board (all the contributors and educators and the administrator Sanjeev of course) — i have had some fun while keeping my capital and some :)) gary, I have learned over the years that I am smart as a stump when it comes to real estate. Dumb luck explains my current situation. When I bought my current residence in Langley (2010) I paid about $600,000 and thought the market might be in a bubble. My mortgage was a little under $400,000 so my starting equity was $200,000. This spring my house might sell for $1,300,000 (perhaps more). My mortgage is under $330,000. With closing costs, costs to break my mortgage and moving costs if I sold this spring I think i might net about $900,000. I started with $200,000 so this would be a $700,000 tax free gain in 11 years (no taxes on principal residence in Canada). Locking in $700,000 real estate gain (tax free) appeals to me. Adding $900,000 to our existing investment portfolio my wife and I will be set up very well financially. If I can earn 6-8% on the total portfolio (my long term average is a shade under 15%) we will be set financially. Another smaller factor is our current house will need some improvements in the coming years. If we stay my guess is we will spend about $70,000 in improvements in the next 5 years (new windows, garage door and motor, plumbing upgrades, new powder room, new kids bathroom, new kitchen etc). We have a nice house... but it will need some work :-) The second part of the equation is lifestyle. Where we live today is a great area to bring up kids: quiet street, great schools (all walking distance), parks, bike trails, newer rec center, shopping close, great sports programs and sports facilities. Great suburban living (50 minutes from downtown Vancouver). Except our 3 kids will all likely be in same University (UBC, on the other side of town) in Sept. My wife and i will be entering the next phase of life (no kids at home; no kids sports activities to keep us busy in the evenings etc). We are thinking it might be great to live in the fun part of Vancouver (close to UBC) for the next couple of years: rent a house ($4,500/month, perhaps more). And be closer to the kids (at school) and spend the next couple of years exploring and getting know the fun parts of urban Vancouver (beautiful city). Actually, this is more what I am thinking; I just broached the idea with my wife and she needs some time to wrap her head around it :-) We have talked about it for the past 6 months or so but I decided it was time to kick it up a notch when I saw what recent sales were going for in my area. We are in no hurry. Historically we have moved every 5 years or so; 11 years in one place is a record for us. The goal is two fold: 1.) improve our lifestyle 2.) lock in / perhaps improve our financial situation No firm decision :-) When we have made moves like this in the past, it normally takes us about 12-18 months for the decision to come into focus. Every move we have made has been a great decision (looked at with hindsight). If we stay I will be happy.

My return for the year came in at 15.6% (a shade better than my long term average). VERY happy. I started the year heavy Fairfax so it could have easily been a tough year. At the time the pandemic hit capital preservation was my key objective: so mission accomplished. I was also heavy cash for large chunks of the year. I did more trading in 2021 than ever before. My gains were made in mostly two time periods each time with a basket of stocks: late March/April (tech, dis, nike, sbuck etc - which I sold way too early) and then Nov (more cyclical stuff). Shifting most of my portfolio back to CAN$ during the year also helped (CAN$ strengthened by a couple of % vs the US$).

That comment made my day :-) I am actually thinking of doing the opposite. Gotta love how smart people can look at the exact same situation and see two completely different solutions / ways forward. No right or wrong. The key is fit. Finding a solution that works for you. Best of luck!