Viking

ENB and TRP; average dividend is +7% Sold my Suncor for small gain. Decided to shift my energy holdings exclusively into the 2 pipelines above (doubled my position in each). Oil stocks are cheap; however, my guess is economic growth is going to be weak moving forward as covid cases spike. Bottom line, whoever wins the US election is going to inherit a brutal economy. Normally gridlock is perceived as being a good thing for the stock market. If we do not get a stimulus bill before the election and then we get a split congress the economy will suffer.

Europe got complacent. Cases here are rising too - in all regions. I think we will crack 100k cases/ day very quickly. Hospitalization is the one metric to look at. The last waves topped out at 60k COVID-19 hospitalization. Once we get to this number, the hospitals system becomes strained, we are going to have local restrictions again. Edit: another indicator - my wife went to Costco today and noticed that several items like paper, wipes were sold out, just like during the first wave. Apparently people are getting ready for things to come. Yes. Do stupid things with the virus and let it get out of control and then be forced to brake (eventually) the economy. Where i live (BC) we are seeing a spike in cases due to weddings, funerals and gender reveal parties. People are ignoring the max 50 people limit. Right before flu season. Stupid is as stupid does. North America and Europe are seeing a spike in cases at the worst possible time... up, up and away :-)

SU

Great article. Thanks for posting. Offers an explanation for why we saw / are seeing such different results in different countries. As we better understand the science and governments implement the learnings we are seeing fewer severe scenarios happen. Very encouraging. ———————— Oshitani told me that in Japan, they had noticed the overdispersion characteristics of COVID-19 as early as February, and thus created a strategy focusing mostly on cluster-busting, which tries to prevent one cluster from igniting another. Oshitani said he believes that “the chain of transmission cannot be sustained without a chain of clusters or a megacluster.” Japan thus carried out a cluster-busting approach, including undertaking aggressive backward tracing to uncover clusters. Japan also focused on ventilation, counseling its population to avoid places where the three C’s come together—crowds in closed spaces in close contact, especially if there’s talking or singing—bringing together the science of overdispersion with the recognition of airborne aerosol transmission, as well as presymptomatic and asymptomatic transmission. Oshitani contrasts the Japanese strategy, nailing almost every important feature of the pandemic early on, with the Western response, trying to eliminate the disease “one by one” when that’s not necessarily the main way it spreads. Indeed, Japan got its cases down, but kept up its vigilance: When the government started noticing an uptick in community cases, it initiated a state of emergency in April and tried hard to incentivize the kinds of businesses that could lead to super-spreading events, such as theaters, music venues, and sports stadiums, to close down temporarily. Now schools are back in session in person, and even stadiums are open—but without chanting. It’s not always the restrictiveness of the rules, but whether they target the right dangers. As Morris put it, “Japan’s commitment to ‘cluster-busting’ allowed it to achieve impressive mitigation with judiciously chosen restrictions. Countries that have ignored super-spreading have risked getting the worst of both worlds: burdensome restrictions that fail to achieve substantial mitigation. The U.K.’s recent decision to limit outdoor gatherings to six people while allowing pubs and bars to remain open is just one of many such examples.” Could we get back to a much more normal life by focusing on limiting the conditions for super-spreading events, aggressively engaging in cluster-busting, and deploying cheap, rapid mass tests—that is, once we get our case numbers down to low enough numbers to carry out such a strategy? (Many places with low community transmission could start immediately.) Once we look for and see the forest, it becomes easier to find our way out.

Quite ironic considering in Feb/Mar/Apr many folks were pleading for increased testing to determine accurate infection and spread statistics, but were met with resistance (what good will testing do!?). I mean Chris Christie was just released. Another fat fuck with no shortage of high risk flags...living to tell about it. Wow another person that didn't die and he is fat as hell with asthma to boot. Fortunately, he is rich and likely got the best care available. Does anyone know if testing positive for covid impacts ability/rate when applying for new health insurance coverage (i.e. new job) or when applying for a new life insurance policy? Do we understand what the long term health risks are of catching covid? My guess is health insurance providers and life insurance companies will be motivated to figure this out quickly and get it priced accordingly.

If you look countries who have had best in class responses to handling the virus (with the best health outcomes and least economic damage) testing was the backbone of their effort. And mask wearing and social distancing. Strong communication with consistent, unified message (lead by science / health professionals). Not rocket science. But still very difficult to execute. Gee, remember when the Surgeon General said masks weren't effective, and that Dr. Fauci guy said the same thing? Yes, in the early stages mistakes were made. Lots has been learned since and now it is clearly understood that mask wearing is one of the simplest, yet most effective things people can do to effectively manage the virus and minimize economic disruption. Even Mitch McConnell agrees with this.

If you look countries who have had best in class responses to handling the virus (with the best health outcomes and least economic damage) testing was the backbone of their effort. And mask wearing and social distancing. Strong communication with consistent, unified message (lead by science / health professionals). Not rocket science. But still very difficult to execute.

I think the key will continue to be the severity and duration of the recession. If the virus is brought under control with a highly effective vaccine the economy could rebound quickly. If the vaccine helps in a more limited way the recession may become more entrenched/structural. Look how long it took for the US economy to recover from the 2008 recession. This recession and recovery could be worse. And all the debt governments are taking on helps in the short run (recession is not as bad) but likely comes at the expense of future growth. (Perhaps all that debt governments everywhere are taking on right now does actually have a cost.) No idea how it all plays out. I am waiting to see what a vaccine looks like and its actual impact on human behaviour. Are people comfortable eating out? Travelling? Do borders open up? Perhaps we get a vaccine and people’s behaviour does not change a great deal in the near term.

I think most forecasters are calling for positive case counts to slowly continue to increase from here and peak in January at about 3X where they are today. The key driver being seasonality. Other factors are lack of mask wearing and social distancing protocols. - https://covid19.healthdata.org/united-states-of-america?view=daily-deaths&tab=trend I am starting to wonder if covid is going to be with us for longer (as a serious economic issue) than is generally expected today, perhaps 2 or 3 years? I think most are expecting a vaccine soon and... poof virus issue will disappear and life will get back to normal. Expectations of what the next 6 months or year will look like from a health and economic perspective are all over the map.

EQR, FTS, CU, FFH, FIH, SU Happy to lock in small gains (4.5 to 10%). FIH was break even; do like the opportunity long term. Learned it is not a good fit for what i want in my portfolio right now. Sold 25% of SU (recently doubled position size).

So when a pension fund or insurance company has a 5 or 10 year US government bond mature their proceeds are going to end up on the Fed’s balance sheet? My comment was aimed at private organization who currently own US government bonds. As these bonds mature and these organization re-deploy where will it go? Demand will increase for some asset classes.

Added to TRP and ENB. My guess is interest rates will be lower for longer. Dividends look safe with growth potential in coming years. Stocks are trading at prices seen in late March. I wonder where all the money in US government bonds is going to go in coming years...

SU Dropping like a stone again.

Yes, i was thinking about those deals but was too lazy to look them up. On pivot Fairfax looks to me making is partnering with established players to manage some of their assets. Smart. The Blackberry Convertible debenture deal is a big win. So as discussed, the tanker does look to be slowly changing course :-)

Thanks for the questions and for providing your perspective. I don’t think we are too far apart :-). Great to debate ideas and perspectives. I learn something new every time. On a more positive note, Fairfax has done some nice things in 2020: 1.) closing of the European Runoff deal was nice to see. Got very good value and the timing of the cash from the sale was ideal. - https://www.canadianunderwriter.ca/insurance/the-thinking-behind-the-latest-omers-pc-insurer-deal-1004177121/ 2.) the significant bond purchases made after the virus sell off. I think it has already resulted in a couple hundred million in unrealized gains with an increase in dividend yield the next couple of years. 3.) insurance business (Underwriting) is chug, chug, chugging along. Hopefully they will be able to monetize a few more assets this year.

I was looking at each across three metrics: company, industry, country From the little bit of reading i did on CIB last year they appear to have a very good track record over many years (decades if memory serves me correct). The issue for Fairfax has been currency. But even with all the country/currency issues the investment has not been terrible (in US$ terms). Eurobank looks to me to be a much more complicated situation with many more risks. The Greek economy was an issue. The government debt was an issue. Grecce’s path forward in the Euro zone was an issue. All the bad loans on the books of all the Greek banks was a massive issue. The proposed carve out of bad loans was risky (great idea but needing lots of time to play out). The merger with Grivalia had risks (all big mergers in banking do). Throw in the risk of another recession hitting (what we are seeing now) and the risk now is progress made is set back years. Position size also matters. If this investment was small i wouldn’t care. It is a massive investment so position size added more risk. CIB? Solid company with proven business model - need to watch country / currency risk. Chug, chug, chug Eurobank? Solid company? Not sure yet. Proven business model? Not sure yet. Likely years more of more of work to get back to break even for Fairfax. And this assumes things in Europe start to get better. There is a decent chance the Eurozone could be mired in recession for years. Some may say: who could have predicted the pandemic? The simple answer is bad things, like recessions, happen all the time and often unexpectedly. Fairfax is an insurer and one would think they understand how to calculate and manage risks - and carry the learnings into the investment portfolio. Instead they have been messing up badly for many, many years. They need to stop with the outsized poorly considered investments. The position size of Altas is another big, big red flag. Fairfax last year talked about having maximum position sizes as a learning from past mistakes. I think they said they wanted to limit equity position sizes to $1 billion. What do they do? They proceed grow Atlas to well past 1 billion. They better hope Atlas does not mess up, given its size. This swing for the fence mentality is great when it works but can be devastating when it does not work and you are trying to re-build investor confidence. PS: in February of this year I was thinking Eurobank was very close to turning the corner and finally rewarding Fairfax shareholders. The pandemic/recession changed things overnight. But that is sometimes what happens. Fairfax has built a company to knock the lights out when times are good (overweight higher risk investments like Atlas, Eurobank, EM equities). But they missed the monetization phase and now that times are bad Book Value had been ravaged and they are left trying to dig out.

Xerxes, for Fairfax to become a long term holding for me i would need to see changes with how Fairfax executes the equity part of their investment portfolio. If they are going to continue putting significant amounts of money in shitty situations then Fairfax will continue to be a short term trade for me. I wish they would tweak their model and simply reduce the number of shitty situation buys and move up the quality chain just a little. So reduce the Resolute, RIMM, Eurobank, Recipe, Toys R Us, Stelco and all the special situation Canadian stuff they have. Right now you can build out a basket of high quality utility, pipeline, telecom, reit stocks that pay a 5% dividend yield (on average). These companies will grow their dividends 4-6% in the comping years. In a zero interest rate world solid, stable, predictable. Would be great for an insurance company to own... maybe 20% of their equity portfolio. Then you have a basket of high quality companies as your core equity holdings. Atlas might fall into this basket (we need a few more years of actual results to know). IIFL companies, Quess, Egypt Bank. Have a few flyers... like Digit in India. But limit these to industries where Fairfax has a deep understanding (like insurance). But please, please, reduce the low quality (company, industry, country... some are all three) ‘investments’. Ben Graham defined investing as: “safety of principle and adequate return. Anything NOT meeting this definition is a speculation.” There has been lots of hand wringing about how value investing is dead. My view is what we have instead seen is lots of shitty investing. Its not value investing and never has been. Look at Graham’s definition of value investing. Fairfax got away with it for the first 15-20 years of their existence so it became hard wired. Mark Twain said “its not what you know that gets you in trouble. Its what you think you know that aint so.” Fairfax has the bones of what can become a wonderful business. But they MUST make one small pivot. Move up the quality tree with the investment portfolio. And become real value investors... PS: recessions happen every 8-10 years... they provide wonderful opportunities to reflect on how successful your investing style is. The insurance side of Fairfax is handicapped right now because they own too much dog shit in their investment portfolio. But this is very predicable. Dog shit companies get crushed in recessions. In 2008 recession Fairfax had these wonderful CDS that masked everything else. Quality is what gets buy and hold value investors through recessions. PS 2: i think we might be seeing a slow shift with the equity portfolio that is encouraging. Reversing the massive short bet and all the commentary afterwards. Atlas has been the largest purchase the past few years and it looks encouraging (although it is still too early to say; and the position size has become too large). Other small examples of dealing with past mistakes: selling APR to Atlas and Fairfax Africa to Helios. Lots more work to be done. But at least to me it appears the super tanker might by slowly changing direction.

Greg, it cracks me up. Much of my family thinks i am a right wing lunatic :-) In terms of Trump i simply cannot understand the logic people use. You ask for proof that he lies at a historic rate. Below is one link. It is irrefutable that Trump lies at a historic rate. Many web sites have documented this (are they perfect? Do they sketch an accurate picture of his behaviour? Yes). Many people have looked in to this. If someone wants to answer this question it is very easy. - https://en.wikipedia.org/wiki/Veracity_of_statements_by_Donald_Trump Anyways, i am just trying to understand the logic of Trump supporters. And until someone provides some i will continue to shake my head in disbelief. But i will try and remain inquisitive and open minded :-) ‘When the student is ready the teacher appears.‘ I am trying to be the student when it comes to understanding Trump supporters. But i guess i am not ready yet. PS: do i think Biden has the onset of dementia? Perhaps. Is Trudeau a poor leader? Yes. Leaders are not perfect. But please, be rational. Call a spade a spade.

No, of course not :-) Your turn.

How does one really know about a person? Great question. Well if you are asking here are some strategies you might want to try: 1.) The best single way is to listen to what comes out of their lips. 2.) Another suggestion is to watch watch what they actually do. 3.) it can also be very informative to watch how they treat other people, especially those they are disappointed with A fourth suggestion is to listen to what close associates/family members have to say - but look for lots of of different sources to get an accurate picture (you will want to avoid the axe grinder types but this can easily be done). If this aligns with what you learned in 1, 2 and 3 above, you might be on to something :-) Anyways, when you layer all 4 of the above together and do so over many years you can construct a pretty accurate picture. Hope this helps :-)

Druckenmiller says stay inquisitive and be open minded. Along this vein, can the Trump supporters (perhaps those who recently posted) please answer each of the 7 questions below. Each is a ‘yes‘ or ‘no’ question. I am hoping your answers will inform and teach me something. Thanks in advance :-) 1.) Trump does not lie at a historic rate - far, far greater than other political figure in US history. This is a yes or no question. 2.) Trump is an ardent supporter of science? Yes or no? 3.) Trump has not tried to intimidate and muzzle the CDC and other departments tasked with handling the pandemic? Yes or no? 4.) Trump has worked very effectively with all states to create a cohesive national strategy to deal with the pandemic? Yes or no 5.) Trump has worked very effectively with the Democrats to come up with a unified approach to deal with the pandemic? Yes or no? 6.) Trump has been a champion in role modelling and promoting the two activities that will have the greatest impact in controlling the virus: wear a mask and social distancing. Yes or no? 7.) Trump has done an admirable job in supporting the 200,000 families who have lost a loved one so far during the pandemic? Yes or no?

Every region in the world is going to struggle to manage the virus. And mistakes will be made. Lots. Here in BC (Canada) they have been slowly opening the economy up more and more. And the case count dropped crazy low mid summer so people started to let their guard down (less mask wearing/social distancing especially with young adult cohort). Lots of get togethers in August especially at the end. Kids are now back in school. It was very predictable that case counts would jump when you open your economy up, end of summer parties, lots of people stop wearing masks/social distancing and you send kids back to school. As case counts increase people will get with the program again. And perhaps there will be new restrictions from the government. The gasoline on the fire will be seasonality (winter and flu season); any regions who have a high base case count going in to flu season will struggle mightily. Lots of red flags right now. But governments will respond and people will adjust. With covid you try stuff, learn, adapt and try again. (Kind of like investing.) These things make a dangerous and very difficult situation much more challenging: 1.) your leader lies pretty much every time he speaks - so nothing he says can now be trusted. Please read this point a second and third time. It is REALLY important especially when dealing with a pandemic... for those of you who seem to have forgotten :-) 2.) your leader does not believe in science. Please read this point a second and third time. It is also REALLY important when dealing with a pandemic. 3.) your leader muzzles / intimidates / politicizes the health apparatus normally charged with managing the pandemic. This is also really important then dealing with a pandemic. 4.) your leader refuses to work with all states and local governments to create a unified approach to dealing with the pandemic (communication, actions etc). This is really important. 5.) your leader is unable to work with other political parties to create a unified approach to dealing with the pandemic. This is also really important. 6.) your leader refuses to champion the two activities that will have the greatest impact in controlling the virus: wear a mask and social distance. This is also really important. 7.) your leader is not compassionate: in the US hundreds of thousands of people have died and many hundreds of thousand will die in the coming months... the virus is a humanitarian disaster and Trump is focussed primarily on... getting himself reelected. His actions in dealing with the pandemic are informed by whether or not they are going to get him reelected. Despicable is the only way to describe this. I could go on and on about all of the highly, highly inappropriate things that Trump has done. Yes, other leaders have faults. But the pandemic has demonstrated his terrible faults and his utter incompetence. The pandemic is proving to be Trump’s kryptonite. 1.) Do i trust my leaders here in Canada. Not completely, but yes. Their faults are minor compared to what we are seeing from Trump. They do not lie every time they open their mouth. 2.) Do our leaders believe in science? Yes 3.) Is the medical community largely leading the response? Yes. 4.) Is there a unified federal, provincial, municipal response? Yes. 5.) Is there a unified cross party response? For the most part, yes. 6.) Are our leaders communicating / role modelling mask wearing and social distancing? Yes 7.) Are leaders showing compassion to the families who have been impacted, especially to those who have lost loved ones? Yes. Do i hold local politicians accountable? Yes. When they said early on that mask wearing would not help that was clearly a mistake; but one that has largely been rectified. More recently, the initial back to school plan looked weak; it is being rectified. Will they make more mistakes. Of course. Do i have confidence they are doing their best and have all BC residents best interests at heart (in terms of pandemic response)? Yes.

Yes, there are lots more things that will play into where Fairfax is in 10-15 years (and how well shareholders do): 1.) Succession planning: important, especially for Fairfax given Prem’s voting control stake 2.) Prem’s personality / character: you either are ok with this or not My guess is a fair number of investors (familiar with the company) have both of these as watch outs. Personally, i am ok with the risks with shares trading at current prices (i am being compensated for the added risk). Also makes it hard to make Fairfax a permanent hold.

Added to ENB, TRP & BCE. Started position in SJR.B (Shaw Communication)

Great question. It is very instructive that float, investment portfolio and share count are all up dramatically the past 10 years but BV per share is not. Five buckets: 1.) underwriting... are they able to get company wide CR to under 95 and then closer to 90: a tailwind, given current hard market and improvement at company over long term 2.) returns from bond portfolio: neutral to a headwind in future years (with zero and perhaps negative interest rates offset by solid long term track record) 3.) returns from equities: neutral (my assumption is the massive short bet kind of thing will not be repeated); poor overall record the past 10 years 4.) management creativity in surfacing value (First Capital sale, sale of 40% of runoff being two recent examples); a tailwind 5.) PE multiple Mr Market attaches to company (largely driven by investor confidence in management): a headwind My guess is FFH will do better a better job of growing BV over the next 10 years. If they do this then sentiment should improve and the PE multiple should expand. IF these both happen shareholders will be richly rewarded. —————— Watchout: amount of debt.