StubbleJumper

Well, not only do I fail to understand why investors are interested in Siruis, I fail to understand why consumers are willing to pay for the service. I must listen to the radio for at least an hour per week in my car. I have any number of stations that I can tune into for free, and mostly what I want are a few tunes and traffic reports. I can't imagine wanting to hook into some radio station in NYC or LA, and I really can't imagine paying money for that. Does anyone on this board actually pay for the service (either monthly or in the upfront lump-sum payment)? Am I the only tightwad here? When I look at Ford's website, they are really flogging the Sirius and the bluetooth connectivity thing...supposedly people get all ga-ga about it and reduce their diligence in making an astute vehicle purchase (ie, the technology makes me so horny, so I don't care if car XX is truly a better deal than Ford YY). SJ

The US is a better place for longterm mortgages, but even in Canada you can get 10 years for under 5%. If you are a subscriber to the "inflation is nigh" camp, then you should be fine with that type of rate. But you are right. The US is a better place for that game. SJ

How about just mortgaging the hell out of your house using a long-term rate instead? If nominal rates increase as a result of inflation, you'll get a similar benefit....and it's easy to do and there's no margin calls.

I was browsing the G&M and saw this article on General Motors share issuance: http://www.theglobeandmail.com/globe-investor/demand-swamps-gm-ipo-sources/article1796983/ Fool me once, shame on you. Fool me twice, shame on me. Do people really think GM suddenly has better long term prospects? ??? SJ

There's no inconsistency between FFH and Longleaf. FFH is taking a macro view, and Longleaf is taking a micro view. What Longleaf specifically said was that the specific companies that they own have a good enough cashflow yield that they could result in a mid-teens return...."based solely on the metrics" of those companies and presumably ignoring broader market overvaluation. Fairfax is saying that they believe that the broader market is overvalued, but they too are buying specific companies with attractive metrics. The decision to hedge is really an effort to protect the insurance company from having statutory capital vaporized temporarily should equity markets tank again. I would suggest that 15% is ambitious, but there were certainly periods during the summer when you could have bought any number of very large caps with the prospect of a 8% or 10% return. It wouldn't be a big leap for Longleaf to do a shade better.

You are probably right. But check out the change in Internet Explorer's market share over the past 5 years. It decreased from like 90% to 60% market penetration. Happily enough, Explorer is not a revenue centre for MSFT, but the mass exodus is an interesting occurrence. I suspect that the office software would be more vulnerable to this than the OS (as I said, for home use, there is little functional difference between Office and OpenOffice), but even that would be bad news. If the market size grows by 10% per year, but your market penetration declines by 10 percent per year, what happens to your revenue? As I said, it's a good thing that Explorer was not a revenue centre! MSFT looks like a good investment (which is why I originally bought it), but you really cannot place a lot of value on cashflows beyond 7 or 8 years. SJ

Where did this 15% business come from? I thought they said their goal was inflation plus 10%, which would be somewhere between 10-11%! They further said that they currently hold a group of companies that have a cash flow yield of 10% which they think could ultimately yield mid-teens....but that was not stated as a goal or a promise to investors.

IMO Yahoo Finance and Yahoo mail are the only elements of any value in the entire Yahoo family. I like the collection of information that can be easily access from Yahoo finance (profile, fundamentals, options chain), and the site is usually pretty fast (even if it's sometimes unreliable). It's also nice that they do not hassle you to sign-up for an account just so you can access the very basic finance information. It's dying a slow death, but I still use it a bit. SJ

It's not a question of numbers. It's a question of technology and consumer preferences. We have seen software companies dominate a particular domain for a number of years and then disappear completely. I mentioned Lotus 123, but there's also WordPerfect, DBase and others. For my home use, I no longer use MSFT products on a day to day basis. I run Linux, Open Office and Chrome very happily, and I supplement this with GoogleDocs for the convenience of always being able to access my spreadsheets from anywhere. Frankly, the functional capabilities of OpenOffice are very similar to Excel and Word. I notice the difference only on some of the more obscure data handling and modelling stuff, but even that is minimal. I will never again pay for an OS or office app. It's not because I'm a MS hater, but simply because the free stuff has gotten that good, and I am a cheap bastard cautious with my money. So there are a number of broad outcomes for MS over the next 10-ish years. Here are a few to consider: 1) MS continues to dominate OS and Office domains, PLUS they innovate and find some other growth avenue. 2) MS continues to dominate OS and Office domains, but they fail to innovate. 3) MS's dominance in OS and Office slowly erodes, but this is offset by increasing market size (ie more installed users around the world) 4) MS's dominance is OS and Office quickly erodes, in fact so quick that it is not offset by increasing market size MS's historical financial performance has been driven with #1 type of growth. I would argue that the past few years have been typified by #2 type of growth (ie, they maintain 9X% market penetration of a market that is growing by XX%). So where are we headed next? Will it continue to be #2 type of growth for the next 10 years or will it be #3 (ie, 75% penetration of a market that is 150% as large as today) or will it be #4 (ie, 40% penetration of a market that is 150% as large as today)? I can't tell you which of the four states of nature will prevail. But I can tell you that, at today's price, if #1 or #2 occur, you'll probably make out like a bandit. If #3 occurs, you'll probably just do ok over 10 years by holding MSFT. But if it's #4, you might have a permanent loss of capital. Smarter people than me try to assign probabilities to the various states of nature that could occur (there are many more than the four that I listed, but I like my four because they're simple and broad). I just have a little discomfort with MSFT because I know that #4 has already happened to WordPerfect and Lotus (and others). There is some potential for a permanent loss of capital, and I'm not sure how to assess the likelihood of this. SJ

I actually did something very strange (for me). I bought and sold MSFT last month for a tidy little profit. It looked (and still looks?) like it's finally priced at a level that can be justified by their cashflow and the business environment risk that they face. I bought a 5% position, and the price promptly shot up by 5%. I said, "What the hell, I've got a profit on the table, and I hate this security, so might as well take the profit." Total holding period was only about two weeks. I'm happy to have made a few bucks, but I never really did like holding a security that has such an uncertain future. I like to mentally buy with the idea that I'll hold something for 10 years.....MSFT could be like Lotus in 10 years! SJ

They can go ahead and discount the equities all they like....but they're hedged, and FFH's subs have ridiculous net written to statutory capital ratios. I think that they're still gun-shy about ratings and will be much more hesitant to raise anyone's ratings for the next couple years. SJ

Well, shedding $1B out of $23B AUM might not seem like much, but at the margin, it's pretty significant. Suppose Klarman has enough great ideas to soak up $5B, a collection of very good ideas that soak up another $5b, and some okay ideas for another $5B. If that were the case, he'd have about $8B too much capital which would probably be left in treasuries or something. Dumping $1B of that $8B of surplus capital would actually take a pretty large bite out of his problem. Not sure just how few ideas he has and how large his surplus really is, but... SJ

Using the Royal Bank as an example, you can get either the NYSE or TSX quote in google spreadsheets by using the symbol RY or RY.to respectively. My assumption is that you can just tack a .to onto any Toronto stock to ensure that google doesn't get confused. SJ

Stubble I own a more than small slice of ELF I have also recently purchased a piece of EVT which is about 50% invested in ELF and is a way to buy ELF at a discount. I have done a ton of DD on this name and it is my largest holding currently by a pretty significant margin. Book is approx 750 per share currently their P&C business is growing because their markets have hardened and their life business is doing just fine thankyou. A small foot note which I uncovered is that their P&C sub was founded by Canadas first Prime Minister Sir John A MacDonald. I suspect that the 20% of Empire Life their gem of a life insurer which they do not own may be available at an attractive price. It just might make sense for the Jackmans who have been involved in histories longest creeping takeover to speed up the process a little. Agreed on all counts. The Q3 results were solid. It is unbelievable that this thing can be bought for ~$400 these days, which is a shade over half their book....and I don't see a lot of crud on their balance sheet that would justify asset write-downs. I suspect that ELF will always trade at a discount, but half of book strikes me as an invitation to buy a good business at a great price. The Jackmans must be sitting back and contemplating the possibility of buying the rest of ELF and taking it private. Just go out and borrow a little bit of money, buy back the shares at 75% of book (which would be a good premium to current market!), and then pay out a large dividend a year or two later which could be used to re-pay the loan. It would seem to be as easy as taking candy from babies? SJ BTW, in my case a "small slice" is about a 5% position.

Too many EU countries (the UK and Germany excepted!) have citizens who seem to think that they can get something for nothing. The people protesting budget cuts in Greece and the folks protesting the need to increase the retirement age in France seem to be living in some parallel universe where GDP and tax dollars just magically appear to make everybody's life better at the cost of nobody. There seems to be a complete inability to have an "adult conversation" within the countries about the options that are realistically available to them. The protests in France are the biggest joke in Europe. The choices about public pensions are relatively straightforward. You can reduce monthly benefits, increase the contributory period, or increase tax rates. It's really quite simple....just choose one of those options. The population went ballistic when the government increased the contributory period, yet I did not see a single placard from protesters asking to instead reduce the monthly stipend, or to increase taxes (at best, the intelligencia would have recommended a tax increase for a mysterious, mythical group known as "the rich"). The response was a series of immature protests like a bunch of petulant children. I am very happy to not be sharing a currency union with countries like that. Canada took its bad medicine in the 1990s, and I am optimistic that the US will eventually come around. But those Mediterranean countries just don't seem emotionally equipped to do what is necessary. Too bad. SJ

StubbleJumper - I am actually very interested in active management. I have really had a change of heart and no longer really plan on using my degrees. I know several local retired hedge fund managers and have been learning from them about basic investment ideas. I plan on getting an MBA or CFA and trying to land a job with associates of theirs... Are you referring to John Bogle? Does Bogle have a website that you know of? Yep, I was mischievously referring to Jack Bogle and Vanguard Funds. Vanguard has a good selection of index funds that have low management expense ratios. With index products, you never need to worry about the integrity of your investment manager, or the tenure of your investment manager (if Klarman leaves Baupost, is it still the same value prospect for an investor), or the style of investments selected. If you don't have the time or stomach to worry about whether Southeast, Baupost, or Chou are sticking to their value-guns or whether the brain-trust will stick it out, then Vanguard is a no-brainer. You probably will not do meaningfully worse than the broad-based indices, which is more than most actively managed funds can promise! If you don't have time, set it and forget it! SJ

I don't try to put current or near-term values on indexes, but when I look at the 13 or so companies I own shares of, I feel like almost all of them are still a bit undervalued based on current earnings, and think their earnings will be hire a few years from now than they are now. Well, that's exactly what FFH does. They try to find undervalued securities. But if the broad market starts to decline, there's a tendency for everything to drop (but perhaps by differing magnitudes...however, when things get silly, they often get really silly). The hedges enable FFH to continue to seek out undervalued equities while ignoring the frothiness of the broader market.

I have no doubt that the US will devalue. But do you really think that the Euro-zone will devalue less? You guys are saddled with all of the problems of the PIIGS who clearly do not have a culture that will enable them to take bad medicine....even the French are resisting the bad medicine that they clearly need. The Euro zone is a mess and will either need to inflate or disintegrate. Norway will ultimately be happy they steered clear, and the UK will be happy they at least opted out of the currency union. I would re-think your US vs Euro views. If you are really concerned about the US, go with Canada or Australia....but in your place, over the long term I'd want to diversify away from the Euro and all of the weak players that look like they will be forced to default. SJ

There are not a lot of managers that I'd trust my money with. But, if you don't have a keen interest in active management of your assets, and you are worried about the potential agency costs/risks associated with a fund manager there's a guy by the name of Bogle who's a pretty sharp cat and probably won't do worse than the broad market indices....as they say, "set it and forget it." SJ

Au contraire. The big bond gains were part of the Van Hoisington/Hamblin Watsa thesis about deflation. FFH has made out like a bandit on the plummeting interest rates. The equity hedge has perhaps been a bust over the past quarter, but am I alone in thinking that the S&P500 is fully valued at 900-1000? It makes me feel good to see the index up at 1200, but I mentally give my portfolio a haircut when I look at my brokerage statement. SJ

I own a small slice of ELF. These guys know how to run an insurance business, and it's trading well below book. The life side is a little ugly, auto is a little ugly, but I figure that I'll be happy with it's performance over the next 5 years.

See article at: http://www.theglobeandmail.com/report-on-business/and-the-winner-for-best-disclosure-is/article1784419/ The Canadian Coalition for Good Governance has given CIBC an award for the best disclosure about their executive compensation....and they point out that the 15-20 pages of explanation constitutes good governance! These guys should read FFH's annual report. We get good disclosure, and the compensation scheme does not require 15-20 pages of explanation! SJ

You are more optimistic than me. My observation about divided houses is that there is very little meaningful progress on policy issues...and the few policy changes that do occur are driven by populism (which places opposition parties in a poor position to fight) or compromise rather than sound principles. Irrespective of my personal political beliefs, I tend to find that split houses or minority governments result in very mediocre government. I expect to see no changes that will impact my investments (which is actually ok, because changes can be both good and bad!). SJ

Perhaps this message thread from the Motley Fool might help: http://boards.fool.com/a-site-with-option-pricing-28843199.aspx?sort=whole#28843199 SJ

Quebec is mining friendly, but it's also environmentally risk averse (and excessively politically correct on any environmental issue!). There's a large chunk of the population that recoils in horror at the idea of potentially polluting water sources, and there are few pollutants more frightening that uranium. There is a public groundswell against natural gas development in the province, despite the obvious economic benefits....the fear of pollution through the fraccing process scares the crap out of people. There was a moratorium on hog farm development a few years back due to fears about nutrient loading (ie, too much phosphate intensive manure on too little farm land) and the impact on water courses. Hydro Quebec wanted to build a natural gas generating station in Becancour, and abandoned the idea when people protested that it was not environmentally friendly (WTF??? natural gas is about as clean as it gets!) All of this to say that Quebec has always been a bizaare paradox. The province has no problem with continuing to run asbestos mines and exporting that cancerous crap around the world. Quebeccers have no problem cutting down trees to produce paper. And there is no issue about a host of other polluting industries that are already in place. Just do not propose a *new* project that might happen to constitute a risk (imagined or real). IMO, for uranium exploitation, there's less political risk in Saskatchewan. SJ