Cigarbutt

Well done! That looks like a 33% return over 8 days. I just saw that ZBH traded at present levels in 2014. Then, they say markets are efficient.

Best post on this thread so far. Thanks This study and related have been mentioned before and limitations related to the conclusions also (co-morbidities are now rampant). Italy has done relatively poorly in terms of outcomes and there are several potential explanations: definition of death cause (when completing a death certificate, one has to document a cause leading to death and to add proximate causes which can be determinant), policy response (timing and type), healthcare resources and management as well as a relatively fragile population. For the last part, a study published in November 2019, dealing with excess mortality related to influenza in Italy (study available if interested), the authors included the following: "Over 68,000 deaths were attributable to influenza epidemics in the study period. The observed excess of deaths is not completely unexpected, given the high number of fragile very old subjects living in Italy."

There is a threat and this is still an ill defined threat. So there is a potential for inflation. The announcement could be portrayed as a stronghold of value whose derived value is also used to gauge the severity of natural disasters and which is falling on hard times. The announcement (now 418 closed it seems, with 1574 remaining open) does not make a direct link to the virus and does not indicate if the closure is permanent or temporary and also advertises carry-out orders. The business, with its 24-hr model, doesn't seem to be as successful in the north (where most 'closures" are happening) and while it's likely that it's virus-related, it's not clear if it is directly related to the virus or related to the public policy reaction to the virus. Yesterday, I took a walk and brought final papers to my accountant's office (it's tax season even if deadlines are delayed). The two people at the reception looked at me as if I was a terrorist (with a look that said how dare you come here) and directed me to a plastic container in the corner of the entrance. They are treating pieces of paper like radioactive material and I wonder what this means, in terms of potential inflation.

"temporary measures" https://en.wikipedia.org/wiki/Income_Tax_Act_1842 It is certain that we are going in a direction. The interesting part is to decide if it's the right one. Wabuffo, I like to tease you and hope you don't mind. 8)

Thank you. The last piece was very interesting. I have a personally favorable bias for analysts who present information in a 'scenarios' way and who let you decide (raw data and analysis versus already chewed up data). And there's a lot to chew on. The rational piece seems to confirm that the pandemic will have a relatively small direct impact on insurance businesses. "The fact that Berkshire’s current price-to-book ratio is historically very low does not necessarily mean that Warren Buffett is repurchasing stock because he could have current or anticipated future opportunities that he considers superior to repurchases." So, I guess it's up to all of us to make up our mind about this but one has to consider that this is, in a way, a "to be or not to be" type of question and, somehow, i wish that the existential side of the question did not exist.

Which companies do you like the best? I don't follow that many, so I'm likely missing out on potential ideas. I agree with your general point that the amount of general posts here has swamped company-specific posts for awhile. It's been hard to get any conversation going about specific companies. KJP, I understand your partially veiled impatience but it is hard to read what the Fed just announced and to continue as if it's business as usual.. FWIW, I read what you write but I don't understand most of the companies you mention. I do find Black Stone Minerals interesting and may contribute over the next few weeks, months.

I've put Mr. Maida's name on a short list as a manager to run part of family funds if I disappear suddenly. It seems that he may not ever produce outlandish returns but is likely to slighty overperform on a long term basis, and he's likely to shine (relatively) during difficult periods. http://www.patientcapital.com/performance-versus-tsx-and-s-amp-p-500-since-2000#chart1 An argument could be made though that his Q3 2019 letter contain passages reminiscent of FFH's 2014 annual report.. http://www.patientcapital.com/news Submitted with humility: A potential way to reconcile all this (and remembering that 'knowing' the future is impossible): it is reasonable to raise the possibility that most asset classes had become relatively expensive, perhaps given a certain sense of false security (or even complacency?). Black swans tend to reveal those discrepancies. The challenge is that, once a secret is revealed or once it is 'discovered' that the emperor has no clothes, it remains exceedingly difficult to predict how people react. I like Mr. Vaida's (and Mr. Buffett's) way of dealing with this.

That's interesting. Please, if you are inclined to do so, provide periodic follow-up, especially when you'll feel that your concerns are taking the corner.

Trials using this exact drug combo will start on Tuesday in NYC. But I guess you know better. We'll see if you're right. Nobody knows better. We're learning as we go. https://www.cdc.gov/coronavirus/2019-ncov/hcp/therapeutic-options.html

If there's enough political will, we should honestly put an infrastructure bill to work. We missed our chance in the last crisis and the state of our infrastructure is pretty pathetic. Honestly - this would be the only deficit spending I would be supportive of as it is a true investment in the long-term productive capacity of the country. Using objective data, common sense and biases ???, infrastructure spending makes sense and is intuitively appealing in certain scenarios but: -public spending is inherently somewhat inefficient, is associated with private crowding out and is associated with a significant lag (these are +NPV projects but the payback is long) -the effect (positive, neutral or negative) is related to: -where we are in the economic cycle (positive correlation with nadir conditions) -the way the projects are financed (similar to a company facing a restructuring, the extent of leverage going in is correlated to unproductive debt) -for those suggesting issuing public 100-yr 1% bonds, the Japan experience suggests that the duration of the bond may correlate with the duration of anemic GDP numbers (BTW, Japan already announced another umpteenth major stimulus last December (in part due to poor business investments...), before the virus and is probably trying to figure out how to push more on the string) When growing up, I was told that, frequently, healing somebody required to distract the person until the natural history follows its course. So, I'm all for infrastructure spending because it is necessary but nature will have to run its course. https://fas.org/sgp/crs/misc/R44896.pdf

You may remember exchanges on another thread that had "S&P 500" and "moronic" in the title (possibility of negative ERPs etc). I do (I learned from your wisdom). This was 2.3 years ago. For interest, comparative compound annual returns since then, SP dividends and TLT "dividends" excluded (and +/- comparable) S&P 500: (4.0%) TLT: 10.6% There is an element of cherry-picking and this is short term but it is what it is. I think we can agree that the "forward" ERP has improved (whatever its absolute level) and the times, they are changin'. -----)Back to the treasured thread

Thought experiment with some assumptions. Note: Stock picking is the goal; this is just to gauge the 'environment'. And, curiously, avoiding the losers may be just as (or more) important than spotting the winners. Assumptions: -time is your friend -beginning yield will be the leash around bonds (10-yr and 30-yr treasuries) -low rates will persist for a while and i pick a 2% dividend yield for the S&P 500 -SP 500 on Feb 19 2020: 3387.33 SP 500 on Feb 19 2037: 3387.33 Results: -expected returns from today's levels: bonds: 0.85 to 1.42% stocks: 4.3% Conclusion: Take your pick. PS This will likely to be my only contribution in this thread but i'm willing to revisit it in 2037.

That’s not the health insurers problem though. Health insurance is a good business and short tail too. Rates gets negotiated every year and costs just passed through. There is some risk of a catastrophic surge in claims I guess, but I think if such a thing happens, they get bailed out too. Hospitals' profitability in the US is that privately insureds come with fat margins, medicare and equivalents come with thin or negative margins and uninsureds or unpaid bills cause losses (think DaVita model). What is coming will dent the bottom line to a significant degree and a bailout is already in the cards: https://www.aha.org/system/files/media/file/2020/03/aha-ama-ana-urge-congress-provide-funding-hospitals-health-systems-nurses-physicians-response-to-covid-19-3-18-2020.pdf The question to come will be: who does not need (or want) a bailout? Health insurers already had a bailout (although it was not labeled as such) with the Obamacare transition and they may ask for more but the risk (risk depending on your political perspective) is that public participation in the restructuring may result in a debt to equity swap. It may be part of a New Deal 2.0.

^Do you remember how a similar disconnect happened before between risk free rates and bonds in general? History doesn't repeat (and we may be still very early) but I remember that it would have been possible, at some point in 2008-9, to build a portfolio of solid investment-grade bonds yielding 8 to 10%. At that time, I was wondering how FFH would redeploy "excess" funds parked in government bonds. They sort of pulled a rabbit from a hat (at least from my perspective) by scooping up a large amount of relatively high-yielding muni bonds, mostly backed by BRK (!). They also did many other profitable moves. It is also interesting to remember that, then, they stood on the opposite side of the trade for some players who were about to find out how painful an explosion in spreads could be. "Toto, I've a feeling we're not in Kansas anymore." The Wizard of Oz

This reminds me of a very interesting discussion with muscleman about money market funds and breaking-the-buck episodes. I just rapidly looked at the composition of NEAR and the asset "quality" seems reasonable so the price movements seem to reveal a very unusual degree of liquidity stress in bond funds. Somebody looked at this ETF price "right" or "wrong" conundrum: https://www.realclearmarkets.com/articles/2020/03/19/beware_the_fed_overpaying_and_subsidizing_bad_bets_104093.html You don't need to focus on the anti-Fed or moral hazard aspect of bailouts contained in the article. Personal (potentially irrelevant) anecdote: I had built a position in WYDE (an ETF "betting", through a derivative framework related to credit default swaps, against high yield debt). I was also looking to benefit from liquidity stress that could have occurred. Last August (2019), the fund was liquidated. When I inquired (and complained), I got the following feedback: There was insufficient interest at the retail level and there were no signs that the interest would shift in the foreseeable fututre. LOL

I think the coronavirus is giving everyone a glimpse into central planning. I'm not saying this is the end or anything. We will probably see massive bailouts, printing of money, and stimulus after stimulus to kick the credit/debt can down the road further. At the end of this I think we will see massive permanent government intervention as the Constitution gets tossed to the side. I'm buying though, I mean what else can you do? Companies and services will still exist after all of this. Cash cows are imo the safest place to put money. This is not the end. But I wonder if this is the end of the beginning. In English: There's a possibility of a long transition with a lot of movements up and down and that scenario can be challenging, in terms of defining entry and exit points. I'm trying to balance the "what else can you do?" with "there may be little place to hide".

The middle was between 2009-2020 Are you suggesting the economy is living on borrowed time? Of course, your prediction could be right. In the process of getting back to a fully invested status, did you look at RH? I'm asking because I remember you had mentioned that you liked their products and their negative working capital profile. In a way, RH (the stock) has been on sale lately and is even spotted by old-style value filters. Somebody thinks RH will do great, if you have a two-year horizon or more: https://www.prnewswire.com/news-releases/the-incredible-transformation-of-restoration-hardware-301027175.html FWIW, I'll give you an unsolicited opinion: the likelihood of going down versus going up has improved along several time horizons but I'm not a buyer. Quantitative financial rationale unrelated to what GS predicts for Q2 GDP: toilet paper retailers may continue to outperform for a while.

cobafdek, how big of a deal is this? A serological assay to detect SARS-CoV-2 seroconversion in humans https://www.medrxiv.org/content/10.1101/2020.03.17.20037713v1 ... Results: The assays are sensitive and specific... I'm not an infectious disease specialist with an interest in pandemics and I'm not cobafdek (who, or others, may be able to answer better although I've always assumed he or she was a psychiatrist). The Coronavirus serological assays (antibody detection) research is moving very rapidly and recent publications have reported a sensitivity of 88.66% and specificity of 90.63%. https://sph.nus.edu.sg/wp-content/uploads/2020/03/COVID-19-Science-Report-Diagnostics-13-Mar.pdf https://www.ncbi.nlm.nih.gov/pubmed/32104917 The study referred to above (from what i can discern), is more recent and may suggest some practical improvements for the tests but the number of samples is lower and i don't see enough 'power' in the data to go above a generic qualitative statement about sensitivity and specificity (although undisclosed supplements may reveal this info). Recently, I broke a rule of mine and did not buy a security when it met a pre-defined target (TRV). It may be a mistake but I need to sleep this through. The reason for the unusual hesitation is irrational and is based on the bizarre behavior of treasuries. Lately, rate movements have been huge (really huge being so close to zero) and long rates have started to rise when, as typically has been the case (forever it seems), with negative developments causing flight to safety. At the time of this writing, rates are negative at the short end and are rising significantly at the long end. I don't know what it means but with all this new money coming in from everywhere and with the multiple indicators pointing to global widespread liquidity stress, it just feels like we've entered a financial twilight zone. When asked last week about the unusual interest rate environment, Mr. Buffett qualified the situation as "unbelievable" and went Yoda: “I would say that's the most important question in the world, and I don't know the answer. Now, if we knew the answer, it wouldn't be the most important question.” I'll try to not let this variable enter the equation but it's quite unsettling.

Perhaps after restructuring - have you looked at their balance sheet and cash flow statement? E-commerce is hard enough to begin with, let alone when you are trying to sell heavy, difficult to ship products at 20-25% gross margins. Also consider that a company that enjoys a negative working capital cycle when sales are expanding (and finances growth from that) will see that unwind, with declining sales causing a cash drain. Good point. That could come back to really bite all the SAAS darlings as well. Dig into their wonderful FCF generation and it's mostly D&A, stock compensation (which will likely decline either due to lower headcount, which kills the growth narratives, or employees demanding more comp in the form of cash), and upfront cash payments on multi-year contracts. In the furniture retail world, many brick-and-mortar stores have embraced the negative working capital model and now the negative aspects related to cash flow generation are starting to show. Isn't Wayfair the 'champion' of the negative working capital model? Won't slowing (or heaven forbid negative) growth mean losing even more money for a while? https://finbox.com/NYSE:W/explorer/nwc I see Wayfair as a company coming back to earth. What am I missing to explain the potential rebound? Edit: Apologies as I realize that the link submitted may require subscription. The graph in the link basically shows a pattern similar to what Dell accomplished at some point but in an exponential (negative) way. Dell was profitable though.

This is what you happens when you try to combat a viral outbreak by listening to "nudge boy" behavioral economists and pseudoscientists. Rapidly achieving "herd immunity" sounds good on paper, but then you have to actually think about what will happen on the way to getting there... Some people still clearly have not learned the basic "flatten the curve" concept. Thank you for the inputs. Here's another perspective related to the UK situation and the "report": https://www.bloomberg.com/news/articles/2020-03-17/prolonged-social-distancing-would-curb-virus-but-at-a-high-cost FWIW, despite some reserves, I heavily support (indirectly and directly) the pro-active efforts deployed in my provincial jurisdiction which, for various reasons unrelated to the virus or the policies, has been relatively lucky, in terms of spread and impact, at least so far. I guess it is still relevant to ask questions, to adapt and to go for cost effective measures (definitions of "cost" and "effective" remaining open for debate). I just read that government officials announced that economic measures to be taken will prevent unemployment from rising to 20%. They are basically looking to flatten the curve. So a flurry of bailouts are coming and the emphasis has to be on the short term and I'm OK with that, at this point, although Bagehot, long ago, suggested that bailouts should balance the short term against the long term and moral hazard. As an avid follower of the GFC, I remember government officials suggesting then that another great depression could be avoided (although impossible to verify) with various monetary and fiscal bailouts. I would suggest that they tried to flatten the curve in a way but people ran out of will and perseverance and we've had the weakest recovery on record, a glaring absence of deleveraging and, in fact, developed economies have become very weak and compromised economic hosts and now a virus hits. It appears difficult to explain, at least from my humble perspective, why we should be surprised by the eventual course of economic events. I just worry about unintended consequences and wonder if, at least, we can base our decisions on solid data, analysis and rational reasoning that truly balances the short term with the long term? Can we think of (and implement) necessary reforms or do we just need that they become imposed on us the way natural selection can and simply hunker down?

When you sell a share short in the market (uptick rule allowing), the intermediate participant borrows one from another investor. You’ve added selling pressure on the market. Covering goes in the opposite direction. When you ask the intermediate participant to ‘create and lend’ an ETF share (if the short selling demand or “hedging” demand (unit creation) is higher than otherwise net general redemption demand from others) with the goal of short selling, the intermediate participant buys the underlying securities in the market and lends you the share for a (create-to-lend) higher fee. Selling the ETF share short puts selling pressure in the ETF market segment (without the resistance of the uptick rule) which is constantly held in balance by the intermediate participant. When you ultimately cover, the ETF share is sent back to the intermediate participant who then sells the underlying securities into the market, adding selling pressure. At least, that’s my understanding. If correct, this is the type of situation where “they” will eventually put somebody who made a bundle in charge of a commission in order to figure out what happened and make sure it never happens again. But eventually happen, it will, in a way, very correlated.

-I think they (UK relevant leaders) have looked at this and they will. The situation is dynamic. -On a personal level (people close to me), the measures taken for the frail and elderly has a net negative effect on the short term and a questionable value long term. Second-order consequences (especially long term) are hard to assess. -On a personal level, most young members of the household are back to the household and I've started to see the consequences of keeping productive individuals idle. It's not all positive. -Flattening the curve is a good idea but there are costs, some of which are long term and the same way humans are not naturally wired to assess long term consequences, humans are not wired to appreciate long term costs of dealing with those consequences. -Flattening the curve assumes a long term commitment and I wonder if this thread will become inactive when it perhaps shouldn't. -Last night, i was asked to review stuff i learned in the 80's and I will try to do my part.

I wouldn’t get your hopes up. He was in big and/or illiquid cyclicals and won’t have been able to reduce much. The best that happens now is they do a great job picking up corporate bonds and don’t have to raise equity in the meantime. With this market disruption, let's just hope that they don't find themselves in violation of some covenant in that goddamned revolver. SJ Isn't "now" a bit early in the game for corporate bonds? https://fred.stlouisfed.org/series/BAA10Y Related to SJ's concern, last February (before the R2000 went down by 37.5%), Moody's made some comments and listed the following risks: high common stock investments, general investment strategy, earnings volatility and added: "A material expansion of the group's investments in stressed or turnaround assets as a proportion of shareholder's equity could also lead to downward pressure on the rating". https://www.moodys.com/research/Moodys-assigns-provisional-ratings-to-Fairfax-Financial-shelf--PR_1000002128 I just want to politely mention that, even if nobody knows the future, the posture comparison, at this point in time, between BRK and FFH, is simply mind boggling.. Too early to go all in? Absolutely. Too early to begin accumulating selectively? Probably a good time to get started. Spreads are at roughly prior peaks outside of 2008/2009. You don't wanna blow the whole load in the event things get worse, but picking IG selectively @ 3-3.5% pick up or HY @ and an 8% pickup isn't a terrible place to start. Certainly a better outcome 3-4 years from now than waiting in 2-year Treasuries for the Fed to hike rates. I agree with you on the concept but... For FFH, fixed income portfolio management has a been a large driver of returns over the years. Given that a significant amount of float has to be invested in fixed income, only small relative outperformance can result in a huge difference because of the embedded leverage. It's interesting to think of their fixed income float management from the perspective of an individual investor whose objective is to remain always fully invested. Dynamic (fellow Board member) explains this very well for equities and the following quote from Keynes is complementary: "In the main, therefore, slumps are experiences to be lived through and survived with as much equanimity and patience as possible. Advantage can be taken of them more because individual securities fall out of their reasonable parity with other securities on such occasions, than by attempts at wholesale shifts into and out of equities as a whole. One must not allow one’s attitude to securities which have a daily market quotation to be disturbed by this fact." Quoting others doesn't result in good returns but, from a humble perspective, this juncture appears to be one of the trickiest, by far, and I would tread very carefully along the fixed income parity curves. The wild card remains what public agents will do (or come up with).

I wouldn’t get your hopes up. He was in big and/or illiquid cyclicals and won’t have been able to reduce much. The best that happens now is they do a great job picking up corporate bonds and don’t have to raise equity in the meantime. With this market disruption, let's just hope that they don't find themselves in violation of some covenant in that goddamned revolver. SJ Isn't "now" a bit early in the game for corporate bonds? https://fred.stlouisfed.org/series/BAA10Y Related to SJ's concern, last February (before the R2000 went down by 37.5%), Moody's made some comments and listed the following risks: high common stock investments, general investment strategy, earnings volatility and added: "A material expansion of the group's investments in stressed or turnaround assets as a proportion of shareholder's equity could also lead to downward pressure on the rating". https://www.moodys.com/research/Moodys-assigns-provisional-ratings-to-Fairfax-Financial-shelf--PR_1000002128 I just want to politely mention that, even if nobody knows the future, the posture comparison, at this point in time, between BRK and FFH, is simply mind boggling..

For 1), statutory surplus is determined by state regulators who typically use a risk-based capital framework (similar to banks) to reduce the value of certain elements (and increase the margin of safety for the policyholder) of the balance sheet, as reported. The discounts vary and depend on the perceived level of risk. FWIW, I've been looking at a few insurers who carry a heavy load of BBB rated corporate bonds (not the case for FFH). An interesting feature is that, in the event of a recession, on top of the decrease in market value for the bonds, surplus capital gets a double whammy because the discount factor is higher for downgraded securities. For 2), your statistical appreciation of forward returns is interesting and is in line with the idea of reversion to the mean, which has been a significant long-term feature at Fairfax (investment strategy, seven lean years analogy etc) but I wonder if such an approach is satisfactory on a forward basis as the investing environment has changed and the Fairfax investment recipe has been changing (some aspects dramatically so) so the future may not be correlated to the past. I think I read you're an MD and the following statistical "joke" came to mind when reading your post. There's this surgeon who comes to the patient waiting to be rolled in and explains that the death risk with the procedure is 1 in 2 but that the patient should not worry because the previous patient did not make it. Thanks For the detailed response. You are absolutely right if the underlying people, processes, and investing environmental context change then the underlying distribution will change and the mean reversion effect may not happen. I love the joke, as most physicians have no or little statistical training/understanding despite three decades of evidence based medicine. I guess the meta question is “has hamblin watsa adapted to the environment and learned from its mistakes. Is their devil’S advocacy before investment commitment as a effective as they think it is?” That the distribution of investment outcomes is something other than 60-40 for 7%? With so many interacting variables involving a biological system, I guess this question may be impossible to estimate with any precision. We know their value principles but how about their learning and leadership principles. Certainly it appears there are a number of individuals that no longer think they have the adaptability moving forward to make decent investment returns. But everything has its price in the market and there is an argument that the past is a sunk cost and all that matters is future behaviour. Ps You might enjoy this randomized control trial from the British journal of medicine https://www.bmj.com/content/363/bmj.k5094 I don't think they have and whether it's a good thing or a bar thing is up to you to decide. They have decades of making macro calls and decades where it served them well. To expect that they'll stop just because 2011-2016 didn't work out for them seems naive. I also made the point in 2016 that them dumping all duration following Trump's presidency was just another macro call. I believe macro calls will continue to be made in the future and shareholder results dependent largely on the success of those calls. My opinion (FWIW) is that, somehow, they have decided to try to move away from "macro calls" and it's ironic to note that, in the event that they could have built and maintained the ark, today's rain would look like pouring gold. @jfan I enjoyed immensely the research that you shared. However, I reject the validity of the conclusion because they did not control the two groups for fasting curcuma blood concentration levels. :)