StubbleJumper

The holdco doesn't have the cash for a large scale buyback. They actually bought far more shares during 2020 than I ever expected. SJ

They needed to borrow some money without pushing up their ratios, so instead of borrowing they sold some of Brit to OMERS, likely with that 9% promise, and then they'll buy it back in a couple of years. Every time they do a deal with OMERS, I feel like I need to take a shower after. SJ

Sanj, You did not place a currency indicator in front of the dollar sign. FFH trading at CAD$750 is not so exciting because that is only US$600. Book value for Q4 will be what, maybe US$460? BV should be nicely over US$500 by Dec 2021, unless FFH's BB gains are as ephemeral as many of us fear. If you did actually mean that it will trade at US$750 within the next 23 months, I would suggest that is perhaps a shade ambitious. I'd love for that to happen, but... SJ

So, taking at look at your Feb 1 spreadsheet, there has been a bit of jockeying of the largest positions over the past 10 days? So from largest to smallest it currently roughly: 1) ATCO ~ US$1.4 billion 2) BB ~ US$1.3 billion 3) Farmers Edge ~ CAD$1.4 billion (or something) 4) Eurobank ~ US$0.8 billion. 5) Fairfax India ~ US$0.6 billion On February 1 when you shared your spreadsheet, I don't think that I would have said that Farmer's Edge would come in at #3 on that list. SJ

I am a shareholder in BRK. I would like them to REALIZE their Snowflake profits, which would require some sort of exit-strategy. Snowflake, Blackberry and Farmer's Edge do not look like businesses that will provide enormous cashflows to their shareholders over the life of the company. They are companies to sell opportunistically rather than hold forever. SJ

I like your numbers better than mine, so I hope that yours are the correct ones! Now all they need is for this IPO to actually fly at the suggested prices *AND* for FFH to find some sort of exit-strategy for what could theoretically be a position with a very high market value. I have more than just a bit of doubt in my mind about each of those requirements! SJ

It's bat-shit crazy. We knew that they were losing money because some of that showed up in the FFH AR. But, we never had the opportunity to see the more detailed financials before, and I must say that I am gobsmacked. Not only are they losing money, but the prospectus doesn't make much of a case that they've got such great operating leverage that they can grow out of their losses by signing up more acres. It looks like they might have negative contribution margin, which would be a complete and utter shit-show. The good news is that sometimes it's more desirable to be lucky than good. The market seems to like these sorts of "disruptive" offerings, and Farmer's Edge is selling itself as a disruptor. This might be the best timing imaginable to IPO this pig. All of the data about FFH's holdings post-IPO are starred out pending final numbers, but there was enough disclosure there to be fascinating. They plan to IPO it for somewhere in the range of $10-17/sh. If I've understood correctly, FFH has convertible debs worth $225m, with an impending mandatory conversion at $2.40/sh. So, if we truly believe this is worth $10, FFH is holding about CAD$1 billion worth of debs at the moment. There is that minor detail of an 18-month lock-up following the IPO, as well as the prospect of trying to dump nearly 100m shares, but in principle, if we at all believe that the IPO price is reasonable, this would be profitable as hell for FFH. My view on this is that it's beyond bat-shit crazy. The IPO price is ridiculous and I am flabbergasted that FFH would have taken a position size of that significance in this company. If it ends up working out, that's great. But, reading that prospectus has actually reduced my esteem for FFH management. SJ

Have you read Fortune's Formula written by William Poundstone? SJ

How much money could FFH have received if they sold 100 million covered calls? SJ

I'm not sure that it would be a good thing for BB to be caught in the middle of two oligopolists battling for market share. Those kinds of battles sometimes result in irrationally low prices as each side stakes its claim. AMZN and GOOG can easily play that game because neither needs to make money from the auto market any time soon, but short-term profitability is probably a bit more important to BB. SJ

This doesn't look so good for FFH's BB investment: https://web.archive.org/web/20210201190101/https://www.theglobeandmail.com/drive/technology/article-ford-vehicles-will-use-androids-operating-system-as-part-of-a-new-six/ Ford has selected Google and Android as the cloud service provider and operation system for its cars. SJ

Agree with most of that. Everybody, including Prem, makes a great many "errors of omission" (eg, I should have bought Costco shares in 2009, but I sucked my thumb). Prem also makes a great many moves which we have identified, ex post, as "errors of commission." But, mostly those errors of commission were buying errors rather than selling errors. We are frequently left to bitch and moan that Prem shouldn't have wasted capital on XYZ or ABC company, but rarely do we need to bitch and moan that he sold too early or too late. As you noted, the pre-mature sale of the high-quality large-caps in the aftermath of the financial crisis is the one major selling error that comes to mind. If Prem has failed to take advantage of the opportunity to dump BB shares, it would be a pretty unusual sort of error for him. I would also note that we probably shouldn't be fixated on a US$20+ price for BB. The opportunity to sell in that price range lasted only one trading session (so far). I would not fault FFH for not blowing 47m shares out the door in a single trading session and magically time the top of the market. That being said, there has been plenty of opportunity to basically sell as many shares as you'd want, spread over 3 or 4 sessions, and a weighted-average price of US$15 or $16 would have been easily achieved. In my book, that price is already bat-shit crazy, but I'd love for somebody to show me that it's not! I would be quite concerned with the notion that FFH actually believes that BB is worth more than that. SJ Per your first point, I half agree. I am tempted to say that RFP above $10 was a chance but when you hold a third of the stock maybe you just can't. But my bigger issue with your argument is that there simply haven't been that many great opportunities to sell Prem's equity holdings over the last few years, so how can we know? Per your second, the bull case is obviously that QNX and/or IVY become subscription products, so that instead of earning say $5 per year on 30m cars manufactured, the company earns say $10 per year on the installed fleet. For example, if you assumed that BB could get subscription products into 20m cars a year from 2023 onwards, you'd have $1bn in very high margin incremental revenues by 2027 and all sorts of fancy theories about how that base could be further monetised. I can easily see this market paying $15 for that. The issue is this thesis requires so many things to go right and there is absolutely no hard evidence that it will happen. To be fair, FFH's investing failures loom large in our mind, but the successes fade as time passes. The repeated purchase and sale of bonds for large realised gains is all but forgotten, including the success of the put bonds and munis. The successful cycling of equities drove considerable realised gains, but who remembers White Mountain, King Pharma, Old Republic, or the other successful purchases and sales. We do remember the successful purchase and sale of credit default swaps, but even that is beginning to fade. What sticks foremost in our minds are the more immediate failures with derivatives, of Torstar, and of Abititi Bowater, but those were principally buying errors, not selling. Turning to the prospects for BB, I too can imagine the market paying $15/sh for the cashflows that you outlined, but that does not necessarily mean that BB will ultimately generate adequate cashflows for shareholders to justify the price. The bull case seems to be that maybe in 5 years, BB might generate $1B of earnings, which if it were sustainable over a long period of time, would be adequate to justify a US$10B market-cap. As you noted, a great many moons and stars need to align to achieve that $1B number to begin with, and then as we know, the history of the technology industry is littered with the carcasses of failed category leaders who dominated their niche for 5 years or a decade and then were supplanted by a competing product. So meaningful cashflows won't likely begin to flow until four or five years have passed, and then who knows how long they will endure. Perhaps I should make a note in my calendar for January 2036 to check how much cash BB transfers to its shareholders over the next 15 years and to see what remains of an investment made in 2021 (it might still be ticking along, or it might be long disappeared). I guess for now I will remain in the camp that the market price is bat-shit crazy! SJ

Thanks for linking that. It was an interesting read, rocket ships aside. The bull case is an interesting set of possibilities, but it is a bit of a shoe-string case. SJ

Agree with most of that. Everybody, including Prem, makes a great many "errors of omission" (eg, I should have bought Costco shares in 2009, but I sucked my thumb). Prem also makes a great many moves which we have identified, ex post, as "errors of commission." But, mostly those errors of commission were buying errors rather than selling errors. We are frequently left to bitch and moan that Prem shouldn't have wasted capital on XYZ or ABC company, but rarely do we need to bitch and moan that he sold too early or too late. As you noted, the pre-mature sale of the high-quality large-caps in the aftermath of the financial crisis is the one major selling error that comes to mind. If Prem has failed to take advantage of the opportunity to dump BB shares, it would be a pretty unusual sort of error for him. I would also note that we probably shouldn't be fixated on a US$20+ price for BB. The opportunity to sell in that price range lasted only one trading session (so far). I would not fault FFH for not blowing 47m shares out the door in a single trading session and magically time the top of the market. That being said, there has been plenty of opportunity to basically sell as many shares as you'd want, spread over 3 or 4 sessions, and a weighted-average price of US$15 or $16 would have been easily achieved. In my book, that price is already bat-shit crazy, but I'd love for somebody to show me that it's not! I would be quite concerned with the notion that FFH actually believes that BB is worth more than that. SJ

To be clear: as individuals, we have to each come up with some kind of odds (based on incomplete info and uncertainty, for various life decisions) and bet on those odds and i totally respect that others reach different conclusions, for themselves. i assume personal disclosure of age, health etc is not necessary or relevant here but i did not take supplementary vitamin D before Covid and have not, so far, changed this conclusion with Covid but remain open to be convinced (change my assessment of odds), seasonally or otherwise. You may think that this posture is a result of unnecessary obstinacy and you may be right but there's this (likely true) anecdote about Mr. Buffett who was offered to make an asymmetric bet for a specific shot while golfing. https://www.investment-in-stocks.com/stupid-in-small/ Please don't take the 'stupid' qualifier personally or in direct relation to this question. :) BTW, when one of my daughters reached 18, she asked the following question: when you vote (oups forbidden word now), do you vote for yourself or for the greater good? and i was not able to give her a satisfactory answer (although i tried to give her tools to reach her own answer). What i mean by that is that the answer given to such a question (vitamin D supplementation) may require a different threshold if you decide as an individual (should i take it myself?) versus if (let's say) you've been given responsibility to (let's say) allocate scarce funds for studies or distribution at the population level (we have delegated many collective decisions to others in democracies). i've always tried to align these non-binary questions. It's not always easy. CF The Buffett anecdote is perfect. The odds at 1000-to-1 on the hole-in-one were inadequate for the old man to take the bet (I wouldn't take those odds with my golf game either). This gets to the basic point that Buffett has always made, which is that price is what you pay and value is what you get (the price of the bet was probability of failure x $20, the expected value of a win was probability of success x $20k). This tells me exactly how strongly you feel about the difference between causation and correlation when it comes to vitamin D and covid. The price that you pay for 6 months of "vitamin D coverage" is a little less than $10 and your benefit is the decremental probability that you die/have an ICU stay/have a hospital visit/have a miserable set of covid symptoms at home multiplied by your qualitative valuation of those conditions (eg, maybe you view avoidance of your own death to be worth $250k, maybe you view avoidance of the misery of an ICU stay to be worth $50k, maybe avoiding a hospital stay is worth $5k to you, and maybe avoiding a couple of weeks of miserable symptoms could be worth $1k to you). In the context of the potential value of avoiding the range of bad outcomes (or at least decrementing the outcome within that range), your decision to not take $10 of vitamin D tells me that you assess the decremental probability of those outcomes in the presence of vitamin D at approximately zero. When somebody who has studiously read the literature makes the assessment that the likely impact of vitamin D is so low, it does offer an opportunity for the rest of us to reflect. Thanks for sharing. SJ

^ So, Cigarbutt, having said that, are you yourself taking supplementary vitamin D this winter, and if so, how many IU per day do you take? Did you change your dose of vitamin D supplements in response to the emergence of covid, or are you taking the same amount now as in winter 2019? At what point in the spring do you expect that you will be able to absorb adequate quantities from natural exposure to the sun (mid-April, or perhaps later) or do you take vitamin D supplements 365 days per year? I understand that we kind of need to twist ourselves into a bit of a pretzel to arrive at some sort of logic of taking vitamin D for prophylaxis, but any concrete evidence of causation will almost certainly be too late to be practically useful. So, personally, I am still stuck with Pascal's Wager. JS

Okay, to be a modern investor, when you write posts with massive speculation, you should always include several rocket emojis at the end of the message, you should proclaim that you are "going full-out retard" and that you have diamond hands. SJ

Fair enough. There are definitely valuations out there that are bat-shit crazier than BB at US$8. IMO, those valuation portend an unacceptable return for the person who will eventually receive the totality of the cashflows to shareholders that those outfits will emit. So, the question of $8 for BB basically boils down to, "Can BB take its current $3 B in assets and convert them into a stream of cashflows to shareholders which have a present value that exceeds $5B?" Never say never, but the math doesn't at all look compelling to me! SJ

First off, I hope that FFH dumped a large slug of its BB shares when they rose into the US$20 zone. But, frankly, it's not too late to dump them, as even today they are bounding around US$16. That is still a very good price and I still hold the view that converting the 47m common shares into ~US$800 cash would be a rational move. But assuming that FFH has not dumped shares, one should question why that might be. Here are a few possibilities to ponder: 1) Is Prem (and Bradstreet) stupid? The answer to this question is clearly, "No, Watsa and Bradstreet are anything but stupid." They are not sitting in their offices drinking beer and snorting coke, completely oblivious to BB's rocketing share price. They are obviously not dumber than the three other insiders who dumped their shares a week ago. They are not so dumb as to delude themselves into thinking that BB can generate enough income any time soon to justify a market-cap of US$7B, $10B, or $15B (corresponding to share prices of ~US$12, $16, and, gasp, $25). The guys at FFH are completely numerate and will have done the same exercise that Pete and others have been cobbling together in recent weeks, which shows that any price over US$8 is probably bat-shit crazy. No, Prem is definitely NOT stupid. 2) Does FFH have a legal agreement or a gentlemen's agreement to not sell the shares? This is an interesting question. We saw the existence of a stand-still agreement arising from the reissuing of the convertible debentures. Usually those are intended to forestall a takeover offer by preventing parties from acquiring more shares. But, is it possible that there is some legal agreement preventing the liquidation of shares? Further, if there is no legal agreement, is it possible that Prem entered into a "Gentlemen's Agreement" with John Chen or some other party to not liquidate FFH's shares unless certain conditions are met (a date limit, a share price, something else). If such a gentlemen's agreement exists, it would be a tremendous disappointment because it reflects a way of conducting business that lacks transparency. Respecting such an agreement would be a positive reflection of Prem's integrity (be a man of his word), but making such agreements on a material investment without disclosure might constitute yet another governance abuse, in a long string of past governance abuses. This one is a real possibility. 3) Has FFH lent its shares to the shorts? Is it possible that Prem has taken a page out of Mason Hawkin's book, and has lent out FFH's large block of shares. Prem preaches against reaching for yield, but it interest rates so pathetic these days, is it possible that some outfit approached FFH and offered a decent borrow-rate on the 47m shares? If FFH has lent its shares to a short, is it ethical/legal to subsequently convert the debs and dump them on the market (thereby assisting the short)? If, in November, somebody offered a 6% or 7% borrow rate on 47m x US$6, would that have been a bad offer at the time it was made (and possibly accepted)? This is a real possibility, and it's the sort of thing that could be tough to unwind in the short-term, and depending on how it's structured, it could actually result in a loss of capital if the counter-party isn't strong (ie, see the failed hedge funds from last week). 4) Is there some regulatory constraint that we don't understand? I don't think this is there is a regulatory constraint, but there are tomes of rules out there, so it's not inconceivable. I'm not sure that we'll ever get disclosure about why shares have not been sold. The gentlemen's agreement under #2 would piss me off the most, but I don't have such a problem with #3 or #4. I think #1 is outrageous as an explanation. SJ

Hi wachtwoord...Greg's post that got him in trouble was not in the Politics section, but this Coronavirus thread. If it had happened in the Politics section, which was closed a few days ago, he would not have gotten in trouble. It's as simple as that. So me being impartial is not an issue. If someone else did the same thing, they would be gone too. Greg has gotten a couple of warnings about posting political or inflammatory comments outside of the Politics section...this was not simply a first offense, but it consumes my time moderating the board. If people cannot follow the rules, there are warnings and then a consequence. Cheers! IMO, you were pretty patient. The one that pissed me off was the religious references to BAM last spring. Garbage. SJ

Where are you coming up with 5 days? I have never seen a 13D amendment issued later than one day after a change of 100 basis points or more change in position size. The SEC rule is that you must file promptly. Blackberry is U.S. listed and files a 10-K so can't imagine Canadian rules apply. Per SEDI Wade Burton sold some shares today and Roger Lace sold some last week. It is going to be a very hard conversation if two senior members of Hamblin Watsa sold shares but Prem wouldn't let FFH sell any. Holding out hope FFH used a total return swap to reduce their notional exposure and somehow convinced themselves via their attorney that they don't need to file an amendment as the TRS is cash settled and not a security. But I'm thinking that is a long shot at this point. I'm pretty sure they did something. They are value investors...opportunistic investing...this is not something they would not protect. I doubt they sold shares, as that wouldn't look good in terms of their long-term expectations for BB. Put options, total return swap, written calls, BB doing a private placement at a high price...they have choices other than outright selling. And if Wade sold, you know the team is thinking about the best way to protect the gain and BB as well. And this is Fairfax, they can execute on these things very quickly...it doesn't take weeks. Cheers! For most of those options, we should soon see a filing: https://www.osc.gov.on.ca/documents/en/Securities-Category5/csa_20100611_55-312_equity-monetization.pdf SJ

No, they have 47m shares and a bunch of convertible debentures that they could convert into another 55m shares. There's no excuse for not having sold the 47m shares when the volume has been so high this week. SJ

This is a bit of a crazy situation. I wouldn't object if FFH dumped its 47m BB common shares and then held the debentures. That strategy would be akin to trimming on the way up. If they dump the 47m shares for US$1 billion and the share price subsequently falls back below the debenture conversion, at worst they'd get the $1 billion plus $330 million for the debs. That would be roughly breaking even. The worst would be riding the share price all the way to the top and then all the way back down without crystallizing any gains at all. SJ

I am nervous that after nearly a decade, Prem still doesn't have an exit-strategy for RIM. The share price hit US$25 today, which makes it a market cap of ~US$15 billion. Anyone want to take a crack at reverse-engineering how much net income, sales and market penetration that BB would need to justify a $15B market cap? Prem almost certainly didn't sell a week ago because, as an insider, he is supposed to file within 5 days of making a trade. But, if he did already find a way to dump the 47 million common shares at, say, US$12, I have absolutely no problem at all with that. My bigger concern is that FFH will end up holding all the way up, and then all the way back down.... SJ

Yep. FFH's market cap is about US$10 billion and its BB holding is currently worth about US$2.2 billion. This is getting crazier by the day. SJ