StubbleJumper

Yep, it came out today: http://www.fairfax.ca/files/doc_financials/Final-2014-Shareholders-Letter-from-Printers_v001_a6if3c.pdf

Does anybody know when Prem will publish his annual letter? Based on past years, I was assuming that it would be tomorrow. SJ

Mostly I would agree with your observation. However, in this circumstance, the price of FFH soared like 50 bucks earlier this week. It's very likely that the bought deal was priced prior to the 50-buck jump, so $650 would have been roughly fair last week. SJ

Yep, I seem to recall that Eric realised between 40 and 80 bags on most of his FFH options 10 or 12 years ago. And FFH's market cap only tripled or quadrupled over the same period.

I'd opine that there already is more going on than North Dakota cooling off a wee bit. http://blog.chron.com/primeproperty/2015/01/amid-low-oil-whos-moving-forward-with-houstons-big-real-estate-deals/#21137103=0&30039101=0 Thanks, Lance- Okay, fair enough. So what does it mean? I'd say it means that oil exploration will be held in abeyance until prices firm up. So all that sector of the economy dries up. But, the existing wells still need to be serviced for the remainder of their useful life, so there'll still be some level of employment in ND's petroleum sector. There'll be a healthy reduction in royalties for owners of mineral rights, which will affect local communities....and there will be reduced profitability for the companies operating in the patch, which will be dispersed throughout the broader capital sector. So what's the upshot? A state with like 1 million people will hit an air-pocket. But the other 300 million Americans? Extra money! Party on! SJ

Well, if the U.S. didn't have a spending culture, then debt repayment or savings would be a real prospect....but, saving money and paying off debt seems to be downright un-American! ;D Party on! SJ

This is a tough question. In value investing, the principle is that, "price is what you pay, value is what you get." When you do your due diligence, you spend most of your time trying to figure out what range of value you should assign to the asset (ie, you want to buy a dollar for fifty cents, but the hard part is to figure out whether the asset is worth a dollar in the first place). Since both price and value are denominated in dollars, you can make a quick assessment of whether you got a bargain or not. The problem with a car is that value is not usually denominated in dollars. Rather it can be denominated in quantitative factors of total cost per year (or per kilometer) and qualitative factors such as: -does it provide the capacity or comfort that I require? -does it start in the winter? -how often will I have to take it to the shop? -are the safety characteristics aligned with my risk preferences? -is it easy to park? -etc The quantitative part of the problem is relatively easy if you spend a bit of time with Microsoft Excel. But in my experience, the qualitative aspects of value are *more* important and are much more difficult to assess. SJ

I have never found the T1135 to be a particularly well explained form. But who really cares? Just fill it out, whether you need to or not. I'm serious, this is like a version of the Pascal's Wager with two combinations of decisions and outcomes: 1) You fill out T1135, and CRA believes you needed to ==> you're good! 2) You fill out T1135 and CRA doesn't believe you need to ==> you wasted 15 minutes and a postage stamp 3) You don't fill out T1135, and CRA believes you need to ==> you get a couple thousand dollar fine 4) You don't fill out T1135, and CRA doesn't believe you need to ==> you're good! My take is that if there is even a modicum of uncertainty, just take the 15 minutes to fill it out and buy a postage stamp to mail it in. The fine is nasty and federal tax court is inflexible, as a gentleman by the name of Bylo discovered a few years ago... SJ

One of my favourites at the moment appears on my brokerage statement under the symbol CASH.

Ripples? North Dakota will cool off a wee bit, but what does it amount to in the grand scheme of things? The more important factor will be the $750/family fuel savings that will apply to all american families. That's like a $75 billion stimulus package, as most of those families will spend their $750 on any number of goods and services. Party on! SJ

Agreed that there's a bit of a definitional challenge here. When I think about "misses" baseball comes to mind. So, I think about a swinging strike (the old man calls them "errors of commission"). But let's not forget about all of the times that we've taken pitches rather than swinging (ie, errors of omission). In 2014, outside of a few special situations, I bought no securities and instead built my cash position. I came close to buying some securities in October when the market dropped, but real life interfered and I didn't find adequate time to think things through and buy anything. So, in 2014, I made absolutely no swinging strikes, but I failed to swing at any number of pitches that were grooved. Overall, not a bad year. SJ

Sanj, You haven't changed a bit. You've always been well grounded. My favourite post of yours was one that you made on the Canadian board of the Motley Fool about 14 or 15 years ago when you sarcastically observed that Nortel at the time was worth more than the five big Canadian banks combined, along with a dozen or so other large Canadian companies. Some of us listened and reflected, while others dismissed you as a silly, old-school yokel. Well, I'm happy to say that I'm a silly, old-school yokel too! SJ

Just use a rub instead of a sauce. I think that's Memphis style!

Is that so? It did nothing of the sort. I would take the opposite view: we won't know with any degree of confidence whether their insurance results have gotten better for another 5 years or more. One quarter (or year-to-date).....in what was a light cat period....reveals nothing about the risks being run and how well they are being compensated for them. Sorry don't mean to be a troll....and I'm long FFH and think they're great guys and all that, but steady on! Actually, the loss triangles have been fully satisfactory which you might interpret as some degree of confirmation that FFH's underwriting has improved. However, like you, I wouldn't mind seeing another 5 years of disciplined UW before getting too excited. SJ

"640k ought to be enough for anybody" - Bill Gates

So, they want this to be a $1b fund. With a 1% fee, that would net FFH$10m per year. That would be okay as long as it doesn't become a distraction from their core operations.

What do you mean? He paid less than BV for those acquisitions, therefore no goodwill was recorded… Gio Prem should have paid even less than what he did for TIG and C&F. But, hindsight is 20/20.

I'd say the post is pretty superficial. The measuring stick that the author used was share price, which can be completely unhinged from the actual performance of the business. At a minimum, the focus should first be on the relative performance of growth in BV. On this count, both the Jackmans and Watsa have done well. The other interesting point is to even suggest that the companies are trying to do the same thing. Clearly they are not. Watsa is into P&C insurance simply to give him float that he can invest -- and it is the investing side of the game where he has generally excelled. The Jackmans used to be into both P&C and life, but have since sold their P&C subsidiary and are now only into life. IMO, they are insurance guys first and investing guys second. This is not to say that there is any fatal flaw in either business or in either business model. But, I'd say that they are not directly comparable to start with, and if someone does insist on comparing them, it would be better to use a measure other than share-price with a cherry-picked starting date. SJ

I don't believe that he actually spends 500 on each security that he purchases. Just do the arithmetic backwards: Total research time for a portfolio = 1) Time spent screening/scouting for ideas + 2) Time doing a coarse sort and discarding 90% of ideas + 3) Time wasted on securities that you throw on the too hard pile + 4) Time wasted on securities that are good, but not quite good enough + 5) Time that you spend deeply researching the few securities that you actually buy Now, if he's saying that category #5 requires 500 hours for each security then he needs to reflect a little on how he spends his time. What that means is that during a year you might work 50 weeks of 40 hours for a total amount of work of 2,000 hours. If you are nuts, maybe pump that up to 60 hours per week for 50 weeks and that gets you 3,000 hours. Dividing through, that would only enable him to actually purchase 4 to 6 securities annually, and it would require that he doesn't waste a bunch of time on research categories #1 to 4. In my experience, I find that I spend an inordinate amount of time on categories #1 to 3 and probably don't invest enough time into #4 and #5. SJ

We have a winner for the cheapest guy on the COBAF message board. After reading your message, I feel like I'm not worthy! SJ

It is better to trade in your Hyundai and Toyota to something like a Volvo. It is really unsafe, especially Toyota. I would never put my own life at risk. :) http://www.iihs.org/iihs/ratings/vehicle/v/toyota/camry/2013 Volvo is the only car in the small overlap test that didn't collapse the passenger structure. I only drive used cars, but I buy a 1-2 year old certified pre-owned Volvo and intend to drive it for the next 200k miles. A one year old certified pre-owned Volvo is just 60-70% of the price of a new, but it has 10 year 100k mile bumper to bumper warranty. I think it is a very good deal. But you *do* put your life at risk every time you get behind the wheel. The safest thing to do would be to take public transit, but obviously we all prefer to accept a little bit of risk for the convenience of owning a car. For anyone who cares, the following link characterises the actual risk of death in various makes and models of car: http://www.iihs.org/externaldata/srdata/docs/sr4605.pdf Ignoring the cars for which sales numbers are so small that statistics are meaningless, what this shows is that a Toyota Sienna or a Honda CRV are among the safest. This is probably due to the size effect (ie, laws of physics dictate that being the heavier vehicle in a collision is a good thing more often than not) and perhaps a driver selection factor (people who buy boring cars are boring drivers...and from a risk of death perspective, boring is a good thing!). In the end, I would draw people's attention to the fact that even the worst vehicles have a probability of a driver fatality of about 1 in every 10,000 years. Given my annual likelihood of croaking from cancer or a heart attack, I'm quite happy to take my chances every year with a 1-in-10,000 risk, particularly when driving improves my life so greatly. I'm not sure that I'd spend much additional money to reduce my risk to 1-in-15,000 or 1-in-20,000 annually. All of us gotta die from something...so I'd rather spend my money on something that gives me positive utility while I am still living rather than spending it on something that reduces the tail-risk of my dying in a car crash (spend it on wine, women and song rather than protecting against a tail-risk). SJ

Sometimes people are jealous and suspicious of those who have accumulated sufficient wealth to retire very early. My view is that if the money was legally earned, to hell with what anyone else thinks. It's legitimately your money to do with what you like. In terms of setting up an investment partnership, it would seem to me that the easier approach would be to simply move to a country within the EU that permits the type of investment partnership that you would like to establish. Ireland or the UK might work? Otherwise, to move to the US could require a significant effort to obtain work visas... SJ

Something similar occurred in England during the Industrial Revolution. Changing technologies and practices in the agriculture sector freed up significant labour that migrated to towns and cities to fuel the IR. The scale of agriculture in China would suggest that there will be ample opportunity for the agriculture sector to shed labour over coming years. SJ They need city jobs to afford housing. Unless the city parks are large enough for their tents. But what jobs? I get the fact that the past migrants to the cities took factory jobs -- all that stuff at Walmart is made in China. But have we saturated the demand for Chinese factory labor? Is there untapped demand for manufactured goods from China? That's the wrong way to think about it. It's not that the cities are demanding labour; rather the countryside is shedding agricultural labour. This has occurred steadily since the discovery of agriculture in Mesopotamia, but accelerated during the industrial revolution. And, that's what is going on in the developing world. The adoption of technology will force people to urbanize, and that is what will generate wealth (as it always has). SJ I understood your point about needing less bodies in the fields (shedding agricultural labor). I am wondering do they become unemployed or what do they do next? I remember 10 years ago it was clearly cheaper to manufacture many goods in China. But today I believe the costs gaps are much slimmer, and energy is cheaper in the US. We're even spinning yarn in the US again. Tesla decided it was cheaper to do some of it's manufacturing in California of all places, rather than China. So I'm just wondering how that all impacts the "For Hire" signs in Chinese cities. Merely a slowing of manufacturing growth should leave an impact on the rate at which people will take up jobs in Chinese cities. Anyways, I'm not firmly arguing these points. Rather, these are the areas I'm confused about and I want somebody to explain why 250 million people will find city jobs -- what jobs are the Chinese cities currently trying to fill that these people are skilled for? Are we still in a transitional phase where China is growing it's factory labor force at the same pace as the last five-ten years? Like in the United States -- if somebody is no longer needed on a farm, it doesn't mean that for certain he is going to get a job in a city. It could just mean that he is unemployed, right? Mostly what happens is that older farmers will simply retire and not be replaced by their children (who migrate to the city). The farm gets liquidated and assets are bought by neighbours. My guess is that the farmer population in China is getting a little bit older every year as children move to the city and do not takeover the family farm. In a few cases, people stop farming due to financial failure (ie, insolvency, or inferior income prospects). It's conceivable that some of those people might just end up on welfare (because you cannot get unemployment benefits), but my observation is that people who ran their own business rarely end up on welfare. They almost universally have enough motivation and drive to find some sort of job, even if it's just a job pumping gas in town. In the particular case of China, I'm not sure that being on welfare is even an option. I always assumed that the situation was basically Chinese people either need to work, leach off their family, or starve. As a matter of interest, here's a link to a chart depicting the evolution of the US agriculture sector: http://www.washingtonpost.com/blogs/ezra-klein/files/2012/10/number-of-farms-in-united-states.png The interesting thing is that the US lost two-thirds of its farms over the course of 40 years. This occurred mainly as technology was developed and mechanization was adopted in the US and western Europe. However, in the case of China, they do not need to wait to develop new technology or farming practices, all they need to do is adopt existing western practices. It may be that the Chinese farm consolidation could be even steeper than our experience in North America. SJ

Something similar occurred in England during the Industrial Revolution. Changing technologies and practices in the agriculture sector freed up significant labour that migrated to towns and cities to fuel the IR. The scale of agriculture in China would suggest that there will be ample opportunity for the agriculture sector to shed labour over coming years. SJ They need city jobs to afford housing. Unless the city parks are large enough for their tents. But what jobs? I get the fact that the past migrants to the cities took factory jobs -- all that stuff at Walmart is made in China. But have we saturated the demand for Chinese factory labor? Is there untapped demand for manufactured goods from China? That's the wrong way to think about it. It's not that the cities are demanding labour; rather the countryside is shedding agricultural labour. This has occurred steadily since the discovery of agriculture in Mesopotamia, but accelerated during the industrial revolution. And, that's what is going on in the developing world. The adoption of technology will force people to urbanize, and that is what will generate wealth (as it always has). SJ

Something similar occurred in England during the Industrial Revolution. Changing technologies and practices in the agriculture sector freed up significant labour that migrated to towns and cities to fuel the IR. The scale of agriculture in China would suggest that there will be ample opportunity for the agriculture sector to shed labour over coming years. SJ