StubbleJumper

I didn't mind the quarter. The headline numbers might make you want to vomit, but the underlying strength is clearly there. I eagerly await the annual report to get a better understanding of the CR, and particularly I'd like to see those loss triangles. I'm a little disappointed that they weren't a shade more aggressive on the buybacks as it appears that they've only bought back a total of 800,000 shares over the past five quarters -- it's not exactly CitiBank. The interesting exercise is to take the actual 2018 numbers and pencil in some estimates for 2019: U/W profit: $650 <== run rate Q4 net earned premiums to get $13B at a 95 CR Interest and divvies: $850 <== run rate Q4 number, probably a little too conservative Run-off: -200 Non-insurance: 200 <==plug in rough number from 2017 because 2018 was anomalous Interest expense: -350 <==plug in number from 2018 Overhead: -200 Net gains: 0 Basic pre-tax income: $950 Tax: $332.5 Net income: $617.5 Shares outstanding: 27.2m Basic EPS: $22.70/share I like it. A basic EPS of ~$23/sh under the assumption of zero realized gains, zero increase in net earned, and zero increase in interest rates. It's certainly not hard to imagine an actual figure of double that amount.... Cheers SJ

Did anyone at FFH proof-read this: During the fourth quarter of 2018 the company repurchased for cancellation and repurchased for treasury a total of 150,073 subordinate voting shares at an aggregate cost of $20.4 million. During the fourth quarter of 2017 and up to December 31, 2018, the company repurchased for cancellation and repurchased for treasury a total of 806,136 subordinate voting shares at an aggregate cost of $413.5 million. So they were buying back shares for US$133 each during the fourth quarter? I feel like a really shitty investor now because I didn't jump aboard that train! SJ

If you have an Android phone, you might be able to download a Canadian VOIP app called Fongo. This will give you a Canadian VOIP phone number and allow you to listen to the conference call re-play for free. The sound will probably be a little choppy if your internet connection is poor or if the ping is long due to your distance, but free is a good price. cheers. SJ

Most guys are so desperate to increase AUM that they are more than happy to have their letters out in the public domain where it might attract a few new dollars. Klarman is funny about wanting to restrict his AUM. SJ

I'm not convinced they did. I would love it if Fairfax had locked in Treasury yields at 3.2% or rolled into credit in December, but neither seems REALLY compelling if you're waiting for a fat pitch. 3.2% was the highest rates in 7 years, BUT Fairfax believes we're in a period of unprecedented economic growth and rising rates...which makes 3.2% less compelling especially when compared to historical Treasuries. Did credit spreads widen in December? Yes. But they're still mostly tight by historical standards. I think they'd have waited for higher rates and spreads before making a move given their outlook on valuations and rates. Well, locking in at 3.2% might have been the thing to do in retrospect, but in the short term it probably doesn't make that much difference. My guess is that half the $27B of cash/bonds were rolled during 2018 and if they were rolled into 2-year treasuries, what would be the weighted average rate? Would it have been around 2.7% over the year? So the "penalty" for not having perfectly managed the bond port might be ~50 bps on $27B? It would clearly have been better to have nailed it perfectly, but I don't mind the small-ish penalty that they've taken on the theory that rates are headed north over the next five-ish years. SJ

Were you able to buy some for less than US$450? Seems like a no-brainer at that price. SJ

I think people failed to read this. They're off on a tangent. I thought that Part II was already out? In the second part, the author takes a few e-mails that he probably obtain through a freedom of information request and then he uses those e-mails to hint that Buffett might be a racist or might be involved in neo-nazi groups. That seems like a bit of a reach to me.

Don't be insulting. You do not know the politics of the people in this thread. Some of them may be conservatives, some of them might not be. This, however, is hardly an issue of one view point vs another on a particular issue. The extremes of both ends of the political spectrum seem to attract wingnuts in spectacular numbers. If Howie had just thrown a few bucks at this like a normal 60 year-old rich guy, this wouldn't even raise an eyebrow. However, Howie's activist behaviour calls into question whether he might be among the extreme, which leads a pragmatic BRK shareholder to question whether he is one of the tin-foil hat whack-jobs or whether he's a normal rich guy with a really weird hobby. So, which is it? Frankly, I don't give a damn about his politics or whether he's a racist; life's far too short to fuss about others' political views or to fuss about whether others are racist. I just have concerns about whether he's a whack-job, particularly given his annointed role of protecting BRK's special culture after WEB and Charlie kick the bucket. SJ Sorry but if Howies political leanings are this much of a shock to you, you failed in your due diligence. It’s much more likely that you disagree politically, but need an outlet more mainstream than pretending to be a hack like EliG. Howard was never qualified, but personally I think it’s ok because Warren built the company and deserves some semblance of a legacy protector. It blows my mind that clowns who shun other investments because of dual class shares or majority board positions whine now about WB having ONE nepotistic director. LOL, shut up. You don't get it. You cannot seem to see past basic political tribalism. My side is good the other side is bad, always and everywhere, end of story. I wish you the best of luck on making a few bucks. cheers SJ Uhm, yea, I don't get it.... You guys forever have been smitten by Warren and the BRK "culture". Howie has never been deserving of his board seat; ANYWHERE. Regardless of where he leans politically. Now, it comes out he has some far right leaning hobbies and its "Oh, I need to evaluate. Oh, we need answers!!!!" And to me, it's like. "Oh the COBF crowd missed the forest for the trees again. Go figure..." You are saying the obvious, but you still don't seem to get the nuance. I have always maintained that Howie was not qualified for a board of directors position. So, in my mind he was unqualified, but probably mostly harmless. But now I ask whether he's a whack-job because being a whack-job and unqualified chairman could represent a bit of an impending issue. So, do normal and sane 60 year-olds run around the desert at night playing cops and robbers? Whack-jobs certainly do. Just as whack-jobs engage in sit-ins in North Dakota protesting the construction of pipelines and spike trees in Oregon protesting the cutting of forest where there might happen to be a spotted owl (or not). And, if you set your dogmatic politics aside, that's the problem with direct action...it's one thing to hold a viewpoint on an issue, to vote for a party, to donate to a party or a third sector group, to speak publicly about an issue but it's quite another to take the law into your own hands (either by trying to thwart the law in the case of a protest, or to replicate the law in the case if vigilantism). You might excuse the young and foolish for doing this, but once you reach a certain age the explanation of youthful naivite dissipates and you are left with crazy or foolish as the principal explanations. So, is he harmless or crazy? SJ

I was aiming for the big public positions. These are either small (now) or private. I always think it’s pretty tough to analyse the private ones given we seldom know the deal terms or postdeal performance. Well, Torstar is public and it used to be a big position. ::) Seriously, I don't have the historical cost handy, but the position was acquired in several tranches of ~$10m each, and appear to own about 41% of the non-voting shares. It looks like the investment thesis was ill-conceived and I have doubts about whether FFH will ever be able to repatriate that capital. In the context of today's capital level, it's small-change. But, tack on some sort of reasonable return and a "good" investment of that magnitude *should* have been worth several hundred million. Error of commission, but they weren't the only people who mis-estimated the future of newspapers (and Harlequin books!). SJ

Don't be insulting. You do not know the politics of the people in this thread. Some of them may be conservatives, some of them might not be. This, however, is hardly an issue of one view point vs another on a particular issue. The extremes of both ends of the political spectrum seem to attract wingnuts in spectacular numbers. If Howie had just thrown a few bucks at this like a normal 60 year-old rich guy, this wouldn't even raise an eyebrow. However, Howie's activist behaviour calls into question whether he might be among the extreme, which leads a pragmatic BRK shareholder to question whether he is one of the tin-foil hat whack-jobs or whether he's a normal rich guy with a really weird hobby. So, which is it? Frankly, I don't give a damn about his politics or whether he's a racist; life's far too short to fuss about others' political views or to fuss about whether others are racist. I just have concerns about whether he's a whack-job, particularly given his annointed role of protecting BRK's special culture after WEB and Charlie kick the bucket. SJ Sorry but if Howies political leanings are this much of a shock to you, you failed in your due diligence. It’s much more likely that you disagree politically, but need an outlet more mainstream than pretending to be a hack like EliG. Howard was never qualified, but personally I think it’s ok because Warren built the company and deserves some semblance of a legacy protector. It blows my mind that clowns who shun other investments because of dual class shares or majority board positions whine now about WB having ONE nepotistic director. LOL, shut up. You don't get it. You cannot seem to see past basic political tribalism. My side is good the other side is bad, always and everywhere, end of story. I wish you the best of luck on making a few bucks. cheers SJ

Pete, Thanks for taking the time to put together such a thoughtful post. I would offer a couple of pieces (of shit) that you might add to your list: 1) Torstar 2) Churchill Railway 3) Toys R US (is this a POS or not, time will tell) The three above don't cause me too much consternation as only the first was a meaningful portion of FFH's capital when it was acquired. I don't think I need to talk about position sizing or exit strategies in this post. ;D SJ

Don't be insulting. You do not know the politics of the people in this thread. Some of them may be conservatives, some of them might not be. This, however, is hardly an issue of one view point vs another on a particular issue. The extremes of both ends of the political spectrum seem to attract wingnuts in spectacular numbers. If Howie had just thrown a few bucks at this like a normal 60 year-old rich guy, this wouldn't even raise an eyebrow. However, Howie's activist behaviour calls into question whether he might be among the extreme, which leads a pragmatic BRK shareholder to question whether he is one of the tin-foil hat whack-jobs or whether he's a normal rich guy with a really weird hobby. So, which is it? Frankly, I don't give a damn about his politics or whether he's a racist; life's far too short to fuss about others' political views or to fuss about whether others are racist. I just have concerns about whether he's a whack-job, particularly given his annointed role of protecting BRK's special culture after WEB and Charlie kick the bucket. SJ

Well, of course it's muck-raking. Stories like these are usually more than 0% true, but less than 100% true. But, what is the minimum percentage of truth that a muck-raker can use without getting sued back to the stone age for libel? IMO, there's enough facts referenced in the article to protect the newspaper from getting sued, but they've supplemented those facts with more than just a little innuendo. The real question is, "Do the referenced facts and the photos in the article provide you with new, additional comfort about Howie's board of director role, or do they cause you new, additional discomfort with his BoD role? I know where I stand on that question. SJ

Okay, I might be the only one who thinks that a civilian going out on armed patrol at night is extreme. I guess I just figure that type of behaviour would put a guy in the 0.1% or maybe even the 0.01% of the population. It's not quite vigilantism, but... "Normal" leisure behaviour might be watching an Arizona Diamondbacks game, which would put you in the 10%? All in the eye of the beholder, I guess. SJ I don't think it's all that "extreme" ;) https://www.chicagotribune.com/news/nationworld/ct-border-militia-caravan-20181026-story.html https://www.reuters.com/article/us-usa-immigration-militia/armed-patriots-the-private-citizens-out-to-secure-the-u-s-border-idUSKBN0H50VA20140910 I think that so many people, like the article, try to do character assignation on others just because they don't like their opinions on something. It happens all the time for liberals and conservatives. So there's a couple hundred people along the border who are involved in this type of activity, but it's not extreme? There's more than a couple hundred in the Michigan and Montana militas, but despite the numbers, I don't think I'd characterize those as "main stream." SJ Dude, you're blowing this way out of proportion. 1.) He has written a book on the issue, if you want to know what he thinks first hand, read the damn book. 2.) He has a ranch by the border, has seen drug smuggling and human trafficking first hand. 3.) The liberal media has brain washed you and nearly everyone else to thinking border security is anti-immigration and taboo. I think that sums up this post. Brain washed by liberal media? I don't think so. You haven't the faintest clue what I think of border security or immigration. I most definitely have views on the matter, just as I have views on drug trafficking, theft and white-collar crime. If Howie had donned a kevlar vest and started patrolling the inner city of LA to prevent drug trafficking as some sort of civilian police officer wannabe or if he had done a "Patrick Byrne" and created a wacky website about white collar crime, you probably would have seen a similar uncomfortable post from me. With respect to the other end of the political spectrum, I'd be equally intrigued if he were involved in the sit-in against the Keystone pipeline or if he were involved in the 1% protests. All of those are considerably more activist behaviours than what I'd like to see from a company director, particularly one who has been designated to be the conservative guy putting the brake on organisational culture change. The particular challenge is that the most unhinged people on both ends of the spectrum tend to get attracted like moths to a light to these activist sorts of behaviours. So, is that Howie or not? SJ

Okay, I might be the only one who thinks that a civilian going out on armed patrol at night is extreme. I guess I just figure that type of behaviour would put a guy in the 0.1% or maybe even the 0.01% of the population. It's not quite vigilantism, but... "Normal" leisure behaviour might be watching an Arizona Diamondbacks game, which would put you in the 10%? All in the eye of the beholder, I guess. SJ I don't think it's all that "extreme" ;) https://www.chicagotribune.com/news/nationworld/ct-border-militia-caravan-20181026-story.html https://www.reuters.com/article/us-usa-immigration-militia/armed-patriots-the-private-citizens-out-to-secure-the-u-s-border-idUSKBN0H50VA20140910 I think that so many people, like the article, try to do character assignation on others just because they don't like their opinions on something. It happens all the time for liberals and conservatives. So there's a couple hundred people along the border who are involved in this type of activity, but it's not extreme? There's more than a couple hundred in the Michigan and Montana militas, but despite the numbers, I don't think I'd characterize those as "main stream." SJ

Okay, I might be the only one who thinks that a civilian going out on armed patrol at night is extreme. I guess I just figure that type of behaviour would put a guy in the 0.1% or maybe even the 0.01% of the population. It's not quite vigilantism, but... "Normal" leisure behaviour might be watching an Arizona Diamondbacks game, which would put you in the 10%? All in the eye of the beholder, I guess. SJ

Thanks Jurgis. I never read the politics section as the internet seems to attract silly tribalism on all sides. I'll take a look this afternoon. SJ

John, Charitable donations are a completely normal and expected behaviour for businessmen and directors. I have no problem at all with directors throwing a few bucks at an issue, even if I personally am not in agreement with the side of the fence on which a director or officer sits (this happens all the time with religious, reproductive, environmental and other issues). The strange aspect of the article which I linked is that it's alleged that Howard spends at least some of his spare time running around in the desert at night as part of a para-military style group carrying guns and night-vision equipment. That, IMO, is *not* normal and expected behaviour for an officer or director of a major company. So is he bonkers or not? Seriously, some people in this forum have been hanging their hat on the idea that Howard will be the steady-Eddie type of guy who will help preserve and maintain the BRK culture after WEB and Charlie croak. For that type of steady-Eddie type of role, you definitely don't want a guy who might or might not be bonkers. SJ

So, you dismissed the article without even reading it? FWIW, I don't much care about US border politics, but I do care a little about indications that directors might have a bit of a funny worldview. If a director's priorities in his personal life are a bit extreme what does that say about how he views a company's priorities? But, it's probably just a super political article, all you need to do now is figure out the motive. SJ

Howard Buffett, appointed to the BRK board of directors by WEB, apparently has a bit of a hobby of playing cowboys and indians: https://www.phoenixnewtimes.com/news/howard-buffetts-warren-buffet-son-border-war-cochise-county-11103225 This is the man whom WEB has entrusted to maintain the special BRK culture after Warren and Charlie move on to the big stock market in the sky. SJ

He isn't qualified to be on the BRK board. That's a pipe-dream that WEB cooked up with the notion that it will perpetuate the BRK culture. Nice dream, but IMO, that culture is toast after a couple of CEOs post-WEB. SJ Howard Buffett did serve on a number of boards over a 20 year period. Some of them Fortune 500 companies. But it still smells like nepotism. At least he won't be wielding a shitload of multiple voting shares as well. Well, more importantly, at BRK Charlie has been playing the role of providing the challenge function to ensure that WEB doesn't execute wacky ideas. As a result, BRK has been managed well and conservatively. In contrast, Prem very badly needs a board with strong external voices to tell him when he's being wacky. Without that, Prem keeps rolling around in his little echo-chamber. The other detail is that WEB owned more than 7% of the economic interest when Howard was appointed, and he didn't re-weight his multiple voting shares a year before engaging in nepotism. In contrast, the Watsa family, which owns 7% of the economic interest, has three BoD positions. Bad governance all around, but egregious in Prem's case. SJ

He isn't qualified to be on the BRK board. That's a pipe-dream that WEB cooked up with the notion that it will perpetuate the BRK culture. Nice dream, but IMO, that culture is toast after a couple of CEOs post-WEB. SJ

How big was their VRX position? I didn't know about that one... I don't recall specifically, and to be 100% forthright I could be thinking of Francis Chou(who seems to mirror Watsa with his portfolio quite a bit) but I'm pretty sure it was FFH, but maybe 1-2 years ago I saw VRX pop up in the filings. It wasn't anywhere near the top. Perhaps when VRX had crashed and was in the 30's or 40's. But the thing that stuck out for me was the pattern. WTF is the obsession with these heavily levered problem child companies? Like, you're bearish on everything; OK. I get it. But then what the heck are you doing allocating money to companies that look like this??? SD, BBRY, RFP, SSW.... Thats the whole portfolio betting on companies that more or less constitute the same sort of macro bet. You don't get home run turn arounds, if the broader market is, as you say it is(ie overvalued and headed towards chaos). That is what I've never been comfortable with. I am ok betting on managers who express differing views than me. I understand others have a circle of competence where I don't. But for the past decade, I can't reconcile the logic used for the FFH portfolio. It just hasn't made sense and the results have more or less been what I'd expect given how out there they are. I don't recall their investing in VRX so if you ever come across the filing again please post it. I think you're being a but (bit arguably only a bit) simplistic in your characterisation. SD was a perfect example of what you're talking about, but was very popular as a value investment and hotly debated here as I recall. BBRY wasn't levered, it just got steamrollered by the iPhone which FFH underestmated badly. SSW only became an investment as it embarked on a dramatic deleveraging under a new and proven hard-asset management team. The bottom line is that FFH are value investors. Sometimes they see value in fast growing companies (Quess) and sometimes its in great businsses at silly prices (Grivalia) but sometimes it's in levered junk at (what they think are) silly prices. By and large that third category hasn't worked for them in this cycle, partly because they chose the wrong horses and partly because value hasn't worked for a while. That doesn't mean it's all they do and beware detractors who focus solely on these losers. Equally, don't hope they will fill the portfolio with KO and WFC and JNJ and just sit there for years. I just don't think that's their style. As to whether investing in levered junk while hedging the portfolio was contradictory, I'm not so sure. This is pure speculation but it's not entirely irrational to hedge your positions in case there's a collapse but to have some levered junk in case there isn't. You don't buy Eurobank if you think there's a deflationary collapse coming, but maybe you do if you feel you're fully hedged against a deflationary collapse and want some value exposure to its not happening. Equity hedge+deflation swaps+Eurobank could be viewed as a macro barbell. I have no idea if this is what they were thinking but it's not a daft framework. What it didn't give exposure to is the epic rerating of quality over the last decade despite (or because of) record margins, but that's unlikely to recur. There is much to criticise in what FFH have done over the last decade, but it's also easy to oversimplify that criticism. My biggest criticism is actually that they are terrible communicators. Maybe that will change with Rivett doing the calls but it would be nice to get to a point where we don't spend ages debating what they meant when they said X or Y. They are terrible communicators? Not on your life. The communications has not been the problem at all. The problem has been recurring corporate governance abuses and reckless investment practices. -they communicated very well each major chunk of BB that they acquired, they communicated that Prem was joining the board of directors, and they communicated that they were looking at a complete takeover of BB. Nothing ambiguous here, they just took a recklessly large position size that FFH cannot easily exit. -they communicated very well that they were re-weighting the multiple voting shares and, when it looked like it might fail, they communicated that they were taking a few extra weeks to twist the arms of a few institutional shareholders to ensure that they got enough votes. There was nothing ambiguous here. The only question that I have on my mind about this is whether they paid off any of the institution shareholders to make it happen (like the two-tiered share structure, paying off large shareholders for their vote is a crappy Canadian tradition). There's been no declaration from Prem about whether any FFH resources were ever shifted to the large shareholders during or around the voting period. -they communicated very well the hedging strategy, including the fact that their hedge ratio was 100%+. Nothing ambiguous here, it was just very poor risk management. -Prem communicated very clearly that his son would be added to the BoD, even though he would never be considered for a board position for any other Canadian company based on merit. Then he did the same thing with Christine. Nothing ambiguous here, it's just a couple of board positions being used up for unqualified family members who are beholden to their father for their future wealth. They'll surely be able to effectively play the challenge function when their billions of inheritance is contingent on not pissing daddy off, right? -Prem communicated clearly that a portion of FFH's portfolio would be hived off to be invested by his son's investment firm. The details were scant, but the overall messaging was clear that daddy was creating a job for his son, irrespective of whether his son would ever be able to attract that type of capital on the basis of merit alone. -FFH was very clear that it was spurning large cap value in plain sight (you know, it was stuff that was a dead easy way to make money?) in favour of throwing money into obscure, risky investments that are not easily exited. There was no ambiguity, but that looks like a major unforced error. No, I'd say that communication was generally pretty clear. It was the decision making and integrity where I have issues. SJ

They'll almost certainly have the cashflow to buyback $200b of shares over a decade. Heck, they have the cashflow to do that today! Given the $1b that was bought back last quarter, they'll really need to step on the gas to make that happen. Maybe a dividend is a better idea. SJ

The deploying of cash would really simply amount to shifting insurance reserves from short-term treasuries into something else, possibly longer term fixed income or equities. I have my doubts that a ~20% drop in the broad market would suddenly make FFH jump all over equities. After all, it wasn't so long ago that they had their entire equity portfolio hedged, which would lead me to believe that they were worried about it being perhaps 50%+ over-valued and seriously at risk of a 1-in-50 or 1-in-100 year equity event. Maybe they nibble around the edges and buy a few select equities. Turning to capital management, I would agree that we should expect them to deploy more capital to buying the minority positions. I am a bit skeptical about FFH's dedication to buybacks, but time will tell. They've certainly already bought back more than I expected they would. SJ