ICUMD

I don't let politics enter my decision to invest or not. Larger trends always prevail. Growing wealth and population leading to more travel, banking and investment services. Modi or no modi. I do think he has liberalized foreign entry to India's businesses, aadhaar will be crucial to business and transactions. These he has brought to the table and are here to stay. Rupee will always depreciate. India's businesses will always grow.

Thanks for the article. Sounds like the perfect explanation. All I'd say, is that is an amazing opportunity for Fairfax India - to provide more liquidity to IIFL in exchange for more equity. IIFL is not going anywhere but up in the long run given its growth rates.

Yes - have been following it closely. Hold a large holding in Fairfax India. I'm not clear on the reasons for IIFL's collapse in share price. Wonder if its due to the volatility of the Indian markets or perhaps a compression of PE values. EM markets don't look particularly strong at the moment. Wonder if there will be a contagion to NA markets.

I'll be there.

Does anyone here have a purchase target price? I'm willing to jump in at the $550 range.

One point however is that BIAL holds a considerable amount of debt on its books. Furthermore, it is expanding the airport with a new runway and terminal, at a cost I believe of ~600 million USD. They have made good strides to reduce this debt over the past year and I think they will continue to do so under Fairfax's prudent management and rapid revenue growth. As they pay down this debt, they should be able to increase BV and induce a rise in Fairfax India's share price.

BIAL may be on the books for 600 million with a 1.2 billion valuation. But it is reasonable to think that the airport is worth far more than that - I doubt you can build a state of the art airport serving 20 million passengers per yr for that price. It is also growing at > 25% yoy. Book value is understated, in my books..... I think it is worth at least 100% more - ~ 2 - 3 billion, pre expansion costs.

I have to plead a bit of ignorance as I haven't read as of yet any of Taleb's books. Though I appreciate the clarification between Antifragile and Resilience now. Personally, as a bit of a philospher I have always tried to distill complex concepts to simpler ones which are easy to understand and apply. In investing, as in life, a multipronged strategy (like in MMA) works best. The two greatest competitive assets one can have in investing is 1. Cash and 2. Time. With these you have options, (however, one can trump the other should there be devaluation). They would I suppose, be the core components of an 'Anti-Fragile' strategy. However, I believe risk is essential - and calculated high risk bets are necessary in life to achieve exceptional outcomes, though these need not compromise base security.

Anti Fragile - sounds a lot like a term coined to sell books. It it not a synonym for 'Resilience'? I think most value investors always strive at 'resilience'. I would argue I've been doing that from the time before Taleb even wrote his book!

I think the performance fees are reasonable considering the expertise Watsa and the Fairfax parent are offering. This business would not exist if it weren't for the quality of management and access to capital that the parent Fairfax, has access to. They are able to lever large funds such as OMERS and and proven that they can make solid investments that would otherwise be unaccessable to the small investor. I guess you have to decide if the 'fees' are worth it for yourself.

I am quite excited about the prospects of Fairfax India. I think India is risky as an aggregate due to high debt levels and corruption remains problematic. However, with the right management - in this case Watsa's, a proven track record and with the right connections, it is possible to find undervalued high growth companies that will do well in the long run. Fairfax India, essentially a private equity company, is investing in businesses with greater than 20% yr over yr growth. I believe that its investments in the Bangalore airport and in IIFL are powerhouses that will lever the rapidly growing Indian middle class. I also think it remains an attractive investment in the $15.50 /share range.

Just a suggestion - for investors that like to think outside the 'box' There are some cars that tend to keep there value more than others. As an example, the Lexus GS 300 my parents own since 2006 (built in 2004) which cost about $45,000 used, is now worth about 2 -3 K. OTH, a 2010 Toyota FJ cruiser (discontinued in 2014), has kept 'most' of its original value if in very good condition and may actually appreciate over time. Some sports cars follow the same traits - many Porsche 911 that have undergone initial depreciation, will plateau at about 50K (assuming excellent condition). Some very expensive brands like MB, BMW and Jaguar have had the worst depreciation over time. Not that cars need to be investments as there is value for reliability, pleasure, functionality etc. However, it never hurts to be out ahead. Especially if you go through multiple expensive cars every few years. Also 'used' sports cars may not be the worst investment ever either (not that I have one).

Thanks rb for the detailed explanation. Its an interesting time - on the surface it seems to be business as usual as you say. However, the unprecedented cycle of debt accumulation has led us into an uncertain financial period. There are many schools of thought (I myself believe the Kondratieff cycle) that an unraveling of this debt may lead to a liquidity crisis. Certainly, there is a general unease that is reflected among many conservative investors. Savers are being punished with low interest rates, yet to invest potentially places risk into over inflated investments with historically high PE values. Its a damned if you do, damned if you don't scenario, with no resolution in sight. I think this situation could go on for many years - especially with Governments sitting ready to 'bail out' financial distress at its earliest signs and with their 'Too big to fail' philosophy, using tax payer money. I'm skeptical about conventional economic theory applying in extreme circumstances - such as the extreme debt loads we are seeing, and unprecedented government intervention. Of course, I'm not an expert in any of this so can only offer a personal observation.

FIH.U - biggest holding. Mostly invested - access to large Line of credit in case of correction. Speculative holdings: FRO, BABA, TCEHY. Googl. IFFNY.

AD - what are the determinants of AD? I would think AD is determined by access to credit. The general public is essentially spending their future income to make luxury purchases today. Over time, I would expect to see AD decline as access to debt becomes more difficult. If this is indeed the case, then what would be the leading indicators of such a scenario? a. Declining GDP? b. Slowing money velocity? c. Increasing defaults- credit card, home, auto. d. Rising interest rates? e. Declining Asset prices - ie. homes. In my mind, there is no question that this will happen as the debt burden continues to grow and the interest payments consume increasingly more income. This is inevitable. The question is the time line. I understand that governments and the fed will try and ease sudden movements, but ultimately - the debt has to be reduced and to do this with a debt fueled AD system seems to be impossible. Also, much of the increase in debt has been to fund over inflated asset prices rather than to improve consumption. As such, there is very little bang to the buck - regarding debt improving AD. Hence the loss of effectiveness of each additional round of QE.

Sure - I agree that national debts (alongside personal debts) also are at risk here. The interesting thing is that there is collusion between other nations to prop up debt burdened countries to avoid 'contagion' . We've seen this with Greece, who knows whats going on behind the scenes with Italy and Spain. And you mention how US and China are helping out Japan. The global coordination of 'inflation' and debt support makes it difficult to know where the chips will fall in my mind. I guess it depends on who blinks first.

Re #4: This scenario is possible, but I think improbable based on human behavior. For people to stop borrowing - they would need to give up on their lifestyle and make sacrifices - perhaps going from a BMW to a used car. Downsizing homes etc. I think most people will have a difficult time with this without defaulting. Hence boom-bust cycles in the economy rather than gradual waves of acceleration and deceleration. Re #5: I agree with Cameron - that QE and low interest rates are funding demand presently. Without this debt creation, I think there will be major economic contraction - ie. deflation. I'm not sure business investments will be able to compensate.

I don't disagree with you at all. QE is essentially masking a deflationary period, each round becoming less effective. However, I think what's happening in Japan is arguable a bit different than North America. Japan I feel is a more closed and protected economy with a different culture where people will not default on their debts. Also, I believe they have multi generational mortgages. Hence the long standing stagnation/deflation ongoing. In N. America/Europe, I think as deflation occurs and for example we see a correction in house prices, people will end up owing more than the underlying assets are worth. Once people go upside down, I think people will simply hand back the keys of their house or car to the bank. As these defaults start, their is a risk of stampede to the door. Interest rates may rise due to default risk increasing. The next step is for the printing money and inflation. How long this takes to play out is anybody's guess. We may in fact go through several more rounds of QE efforts and interest rate reductions.

Source? Based on my personal observations - in 2002 - when Condo 1 bedroom rent prices were $1600/mo and 2017 rental prices where I can get no more than $1700/mo. today. Of course I cannot predict the future, but I don't see rental prices increasing anytime soon. Inventory has at least tripled I would say since 2002. Wages haven't increased significantly. Ergo, the frothiness in condo prices I think is due to cheap credit. Convince me otherwise...

The CDN realestate market will correct, given the proper conditions. It is not unlike the stock market, both of which are propelled by 'investors' utilizing low interest rates to borrow. In 2002, I purchased a 780 sq ft Toronto Condo for 200K (to rent was $1600/mo). This was less than its new construction price of ~350K in 1988. The price of this condo continues to rise and similar units are listed today at ~420K (to rent, still only ~1700/mo.). Maintenance fees increased from ~$325/mo to $700/mo over the same time. Interestingly, during the financial crisis of 2008, prices came down suddenly to about $250K, then continued their upward trajectory afterwards. New condos command an even higher premium of ~ $400 - 500K for 550 sq ft. Things that may cause a correction: 1. Increase in interest rates. (certainly). 2. Tighter regulation on mortgages. 3. Foreign buyer taxes. 4. Creditors get tapped out - leading to higher default rates. When will this happen? It should have happened 5 years ago. Aside from this, it could happen at any time I suspect, but it WILL happen. To have rent/ purchase price disparity of this sort with ongoing maintenance fee and tax increases means that something has to give. I don't think rent prices will increase which leaves a deflation of house prices. Wages have not increased significantly during this time.

My question is how will this debt unwind itself? Some possible scenarios: 1. Collapse of Housing Bubble: ex. CDN housing. Leading to Bank defaults, rising interbank lending rates and finally consumer interest rates. 2. Credit Card Defaults: rising credit card rates, leading to contagion of personal default rates and economic slowdown though decreased consumption. 3. Rising Inflation: currency devaluation followed by demands for rising wages What I'm not sure is how globalization will help to contain some of these bubbles.

Fantastic - thanks very much.

Does anyone know of where it is possible to obtain credit default statistics for home and auto loans? Thanks in advance!

I agree with all rationale in this thread. Everything is overpriced- classic cars, homes, stocks. The common issue I believe is low Interest Rates. With debt so cheap, everything is in a bubble, including Government Debt. The question remains when will the debt bubble pop and what will be the catalyst for this? If governments continue to lower interest rates when niche bubbles (ex. housing market) appear to destabilize, the action may further propel debt to higher levels. If and when the debt bubble pops, cash will be king. I'm just not sure the governments will be passive and allow that to happen as it may very well undermine the financial system. I don't know where inflation factors into all of this, but at some point, I think it will have to rear its head. What's most relevant is wage inflation - currently in Canada there is a move to increase minimum wage to $15/hr - this maybe the tip of the iceburg. Happy to hear other views that support or refute my thoughts.

Re BIAL Land: See Chairman's Letter 2017 http://www.fairfaxindia.ca/investors/Chairmans-Letters-to-Shareholders/default.aspx Scroll down to the section on BIAL. I highly recommend reading the whole of the Chairman's letter to understand the direction of the company.