StubbleJumper

Well, that's a good possibility. So, perhaps the big banks are running in-house systems which are not scaleable and thus fail when demand spikes by a factor of X, while IB has outsourced to a scaleable service provider. That would be a good reason to consider IB. Not too sure how I feel about the security implications. SJ

How is Interactive Brokers the solution? I understand that their platform was not overwhelmed last month, which gives them a gold star compared to the big banks. But, what has Interactive Brokers done which makes their computer trading platform scaleable for these types of events? Do they routinely maintain 20X their normal capacity as a risk management tool for the high volume days? SJ

Part of the problem is that trades today cost less in nominal dollars than they cost 18 years ago. Back in 2001, a trade with TD or RBCDI or I*Trade was $29. Today it's $10 with those companies and $7 with CIBC. In real, inflation adjusted, dollars, a trade today is about $5 compared to the $29 of 2001. What that means is that today's 23 year-old "investors" who are chasing the hottest thing face very low costs to trade in and out of weed stocks. While a young guy in 2001 might have bought and sold Nortel once per week, the low cost of commissions means the the young Turks of today can trade their weed stocks every day or even several times per day without incurring much of a frictional cost. These young studs are the ones who have blown up the banks' trading platforms. What this really underlines to me is the importance of a preferred client group such as TD's President's Club, or RBCDI's Gold Circle. The banks very badly need to segment their clientele to ensure that they are not pissing off the small group that might have $1m+ of assets while accommodating the new generation who are rapidly churning their $10k RRSP. I'm not sure that any of the banks have figured out how to effectively do this. SJ

If the price drops a bit more, we can start calling it a "dividend stock." :P SJ

Most of my port is in US securities or cdn interlisted securities. So, if you sell ffh from the US side of your account and you want to invest the proceeds in the Royal Bank, it's no biggie, just buy it on the nyse. In the worst case that you want to buy something cdn that is not interlisted, it's at least worthwhile to find low cost alternatives for exchange, notably a Norbert's Gambit, when you are dealing with $50k rather than consistently getting screwed on $1k divvies.

Nope, the tax status of a divvy is not about the currency. It's about whether the Corp is an eligible cdn corp. I claim the divvy tax credit every year, just need to convert to cdn dollars.

You are generally better to journal your shares over to the US side of your account and then you get the divvy in US dollars. You can always convert it later if you want cdn.

It could be even worse for Travellers if they truly have half in corporates. Any long bond gets whacked when there is a generalized interest rate increase. On top of that, risk premia for corporates are pretty thin these days, so if you should also see a re-pricing of risk, the long corporates would get doubly whacked. I like what FFH has done with the bond port, and I hope that they've taken steps to get the Allied port cleaned up... SJ

$85m for 51% I believe. 2014 annual letter. I think Fairfax are getting about $105m here and presumably drew dividends from Keg - it doesn't seem to have grown its restaurant count much under their ownership so I assume it was a cash cow. So ~20% over 5 years plus the divvies (if any)? Well, at least it's a gain. SJ

On #1, I'd actually rather see Ben Watsa working somewhere at FFH and have the relationship disclosed clearly in the filings. IE, Ben Watsa, son of Prem, works as a Senior XXXX Analyst in YYYYY subsidiary of FFH. Excluding his pay as a Director, his employment salary for 2017 is $XXX,XXX, and ZZZ options for FFH stock were granted to him during 2017. Instead of that type of clarity, we have Ben being hired by an investment company run by a guy who happened to be on the same board of directors as Prem of a major Canadian charity. So this fellow seems to have hired Ben, and then Prem seems to have elected to have $50m of shareholders' money managed by that fellow's company. I have never found any disclosure of the terms of that management agreement, so I cannot really say whether FFH shareholders are paying $500k per year (100 bps), or $1m per year (200 bps) or some other amount to have that $50m managed. There are many possible ways that this collection of facts could be spun, some of which are quite innocent and would be demonstrably in shareholders' interest, while other spins could be nefarious and indicative of the type of nepotism that SD noted earlier in this thread. Clear and complete disclosure would be preferable. On #2, your take is pretty much in alignment with mine. To unload the BB stake, FFH would need to find one or more parties who are able and interested to drop $1.5B on a large block of the company (and here's hoping that the stake is headed towards $2B!). That will be a very thin market, even it if is a pathway that has been trodden in the past. FFH could end up holding this for quite some time before an appropriate buyer can be found. I am not yet convinced that BB will become a cash-cow that pays a meaningful dividend, but we can always hope that happens. SJ

Nope, I'd say that you're not a buzz kill around here. I am guessing that 75% of board members are steering clear of all of that nonsense. SJ

I have. I struggle applying my estimates as if they are real outcomes. My concern is that either I am very wrong or everybody else is. Naturally my belief is that everybody else is but I also know that I am kind of an idiot and occassionally make decisions with blinders. (My wife would say I am too analytical however). Valuing normal stocks I can build ranges and feel comfortable with it. With this its a much Yes or No outcome and then from that the ranges of outcomes can swing wildly. So you struggle most with asymmetric bets? That's certainly a problem of mine. When the upside vs downside is 4 or 5 to 1 and you handicap the stock at a 75% probability of the favourable outcome, Kelly would say you should bet a hell of a pile of money. But, given the dearth of opportunities, it's not like you can tell yourself that you'll win over the long-term by applying the law of large numbers. So, it's more emotional/personality than intellectual/knowledge? That would be true of most of us. SJ

Have you read about the Kelly Criterion? That would be a starting point to help you think about it. SJ

To be clear, the issue is not whether a fixed income portfolio gets whacked when rates increase; that's a clear duration management question and it's a fact of life for all of us. My only purpose for pointing out that FFH's duration appears as if it may have increased is that we should be circumspect about cheering for rate increases until FFH has finished dropping its duration. Hence my question about whether you figure that they've got the Brit Allied portfolio clean up yet. Otherwise, I tend to agree with your view of the FI port. FFH seems to have gone to cash and short term, which is what you'd like to see if you anticipate an increase in interest rates. SJ

It's not about whether Onyx's general counsel is stupid. It's about FFH having dropped $1.3b into an investment which is not easily exited, in part because Prem sought a position on the board which requires that he publicly report purchases and sales of BB. If he were not a board member, then it would be an easy thing to sell the BB position over a period of a couple of months, ignoring any price pressure that this might create. The BB position is ~$50/sh. I view this capital as somewhat encumbered due to Prem's board membership. You seem to hold the view that it is not encumbered and have given the example of Onyx using a synthetic disposal approach to support that view. Certainly there is more than one way to dispose of a large investment, but I'm struggling to think of other examples of Directors selling a $1b+ position, which is why I asked whether Gerry Schwartz was actually a Celestica board member (in the same way Prem is a member of BB's board of directors). It's not about lawyers being smart or stupid. If anybody has a really great exit-hypothesis for the BB investment, I'd love to hear it. SJ

So, just to be clear, Gerry Schwartz of Onyx was sitting on Celestica's board of directors and engineered a synthetic sale and reported it to the SEC as an insider transaction for public dissemination?

Were those synthetic sales made by a Director of the company who is obliged by SEC regulations to report all purchases and sales?

No real need to wait for the annual to comment on duration. The basic direction is right there on page 25 of the Q3. Based on a Q3 2017 bond port of $11.9b, a 100 bp parallel shift upward in the yield curve would whack earnings by $229.2m. Based on a Q3 2016 bond port of $10.2B, the same 100 bp parallel shift upward would have whacked earnings by $148.2m. So, given that the bond port has increased by 16 or 17 percent but the earnings impact has increased by ~50%, can one arrive at any other conclusion than an increase in average duration? So, has the duration increase in the bond port been undertaken through active management, or is it legacy from Allied as you suggested? I won't post one of the most disastrous examples of value investors counting on a "sum of the pieces" return. It's called Sears Holdings. The sum of the pieces analysis was probably correct, but execution can be a bitch. SJ

I think Blackberry has already joined the frenzy! Yes, it is heartening to see the Blackberry position in the black. What do you envision as FFH's exit-strategy from this large position? Presumably at some point in the future, FFH will want to exercise the conversion privileges on the debt that it holds because the shares have risen. So, with Prem on Blackberry's board of directors, when the BlackBerry investment hits intrinsic value, how does FFH divest its position and re-deploy our capital into the next excellent opportunity? Clearly this one is not like the large positions of yesteryear that FFH had in WFC, JNK and Kraft. Exiting those positions was pretty straightforward because $300m or $500m of additional volume for those mega-caps can be absorbed pretty easily over a relatively small number of trading sessions... SJ

I'm not quite ready to celebrate on this front. What do you make of the sensitivity analysis in the Q3 report that suggests that FFH's duration has increased? I would presume that this is mostly due to the legacy bond portfolio at Brit? Do you figure they've go that cleaned up yet? SJ

What do you make of the contract between FFH and the Lissom investment management company that employs Ben Watsa? Looks like Ben is managing $50m of FFH's assets through that company. I wonder how much FFH is paying in investments fees and why that $50m isn't just taken care of by Hamblin Watsa like the rest of the portfolio? What does Ben make out of this? Is this a 1 and 20 compensation scheme or something like that? Fifteen years ago, Sanjeev would have given his left nut to have a contract to invest $50m. SJ

They'll play a role in electrical charging stations that may take 20-30 minutes to charge up a car or truck's battery. Outside of cities - agreed. But there are too many gas stations around residential areas if you assume that people will be charging cars in their homes or work garages. Having said that, it will be interesting to see how these valuable, high traffic locations are repurposed. Well, that's pretty much my observation too. I fill my tank perhaps 40 times per year, and 30 of those fills are in my neighbourhood. If I get an electric car, presumably I will plug it in overnight which will eliminate the 30 fills that I currently do in my neighbourhood. For longer distance driving, once battery life is good for ~300-400 miles, I'll probably be able to pretty much plug my car in overnight at my destination when I drive to visit family or when I stay in motels, and that would displace a good chunk of my remaining 10 fills. I can envision a time when I might only use a commercial "re-fueling site" on 4 or 5 occasions per year. If my usage of "fuel stations" declines by 90%, would that be typical of everybody else? SJ

By surprises, do you mean catastrophe losses, or do you mean adverse development? If it's the latter, it's pretty tough to know in advance. If the previous management was not disciplined in its underwriting, it can take a few years to find all of the skeletons in the closet. SJ

So, on the subject of disruption, what do people think about outfits such as Alimentation Couche Tarde or Parkland? Essentially, their business is to buy crappy gas stations that the majors want to dump and then operate them. So, is the value in those companies from their operations (selling a tank of gas and a pack of smokes) or is it in the real estate? Or will convenience stores which rely on gas station traffic go the way of the dodo bird? SJ

Sure, that's absolutely true. As your portfolio gets larger, your appropriate position size measured in dollars should get larger. But was the ~$400m CDS in 2003 equivalent to ~$1.3B Blackberry position in 2015? And would a ~$400m CDS position even remotely represent the same risk of a large permanent loss of capital as the complete acquisition of Blackberry? Returns will be lumpy, and that's fine because it's the nature of the market. You make your money when you buy, not when you sell. But, lumpy returns and wacky position sizing (ie, poor risk management) are two different things. SJ