Cigarbutt

Hi Viking, -----)Aside: I just finished an article by Mr. Erik Brynjolfsson who reports that Americans spend, on average, 6.3 hours per day on digital media and suggests that this activity (a view I largely disagree with) results in a significant value add which is not captured in official (production and productivity) measurements. I periodically wonder if my inputs add value and appreciate that the last one here may have helped you. Back to (productive?) work:-----) In the bucket list, D- is not really an underwriting activity but a tool that allows to opportunistically benefit from underwriting leverage (NPW to surplus). D- is typically handled in head office, contrary to the rest which, I would assume, is handled by Mr. Barnard in the Fairfax team. C- includes both a margin of safety which can act as buffer (some use it as a cookie jar to 'manage' earnings) and includes a profit margin (combined ratio objective felt to be necessary to meet specific return on capital hurdles). If you include A-, B- and C-, I would say FFH scores at 7, versus 8 for Travelers and 9 for WRBerkley. The subjective 7 may not sound impressive as such but when put into a longer-term perspective, the improvement of the underwriting culture has been impressive. Do you remember the days of oldco Crum and Forsters? the primary TIG lines? the Ranger business? Ouch! If you look at the last hardening cycles that occurred over the long term, you may want to observe (and analyze) the reserve development cycle. With all cycles, timing is a relative issue, there are cycles within cycles along specific business lines and it is a lagging indicator (who wants to be a laggard?) but I find this aspect of the cycle analysis extremely helpful. I would say an iron law of this specific concept is that a point is always reached when, in the industry at large, it is felt that reserves are still redundant (numbers reported) when, in fact, significant deficiencies have developed but are still unrecognized (the wildness lies in wait). In the Mr. Rivett's quote, solace can be found in the relative aspect of underperformance related to unexpected adverse development which tends to be painful nonetheless. You can look up long-term trends in reserve development but you have to remember that the trend is not static as numbers from previous years are periodically updated every year, sometimes by large and 'unexpected' amounts. A true market hardening is strongly correlated with the realization that reserves that one day you were comfortable with are no longer so, often at a time when the company will realize that its required capital increases at the same time that its surplus decreases. This conundrum is magnified because insurers, during the softening phase, have to balance market share stability versus responsiveness and some (unconsciously?) plan to use cashflow underwriting (write profitable business while adverse development occurs) but this can be tricky. I would submit that this last reserve development cycle has been very unusual in its intensity and duration and, if reversion to the mean is your thing, the industry starting to become a little less redundant could represent an under-statement. The reserve cycle development has definitely been on a downturn (lower redundancies). 2018 revealed a potential slight break in the trend but a material component of the redundancies came from the WC space and the commercial space (which is significant for FFH) likely starts this recognition phase with a larger potential for adverse development. This is all superficial and non specific and look forward to a destruction of the assumptions and analysis and will leave it with a quote which suggests that one does not want to be the dumbest chicken of the bunch, relatively speaking, in the insurance P+C industry: "The man who has fed the chicken every day throughout its life at last wrings its neck instead, showing that more refined views as to the uniformity of nature would have been useful to the chicken." - Bertrand Russell, discussing inductive reasoning (1912)

In my humble opinion, this is another example of the brilliance displayed by Mr. Buffett and his model. He is in a position to negotiate without having actually entered the negotiation process as (I imagine) he would look for some kind of partnership where the public entity would be responsible for a reinsurance type of excess loss deal on past and future wildfires' damages. I'd say he will pretend to have no real interest but he may have defined the price he's ready to pay and the mantle of protection required already with the potential to close a transaction at a lightning speed.

The legal certainty to indeterminacy spectrum does not preclude the fact that equivalent judgements can be reached in the large majority of decisions whichever theoretical orientation of the Court (European, American or otherwise). Similar conclusions can be reached when comparing the rules-based and the principles-based approaches used by Accounting Boards. If you put emphasis on the principles, you have to infer what the rules could be and if you focus on the rules, you have to infer what the principles must be. Disclosure: Optimization of tax efficiency at the individual level and efficient recuperation of excesses at a systemic level are not mutually exclusive propositions as both can be seen as NPV projects, with the individual being the endpoint despite an inevitable intermediate. In this specific case, it is not a decision but decisions as the tax assessment was maintained in the lower court and the defendant was the appellant for the appeal on that count. The issue is around the "advantage" definition and the reasonable application of anti-avoidance rules (pretty straightforward stuff). A sophisticated investor at the time should have known or realized that the transactions did not meet the intent of the legislator. You may want to take it to the limit, but no further. The investor played with radio-active strategies, repeatedly, and with a difficult to explain disregard for basic principles. No wonder it has been described as a scheme: an organized plan for doing something, especially something dishonest or illegal that will bring a good result for you.

Let's go back in time. You're in 2009 and meet the criteria to be deemed a sophisticated investor, make, on average, 14 swap transactions per month for 5 months and move your tax-deferred account from 500$ to 206,615$. All transactions are non-market, with you on both sides of all transactions and all transactions (due to your decision of the price chosen from the day's range) take maximum advantage to avoid paying tax on the differential price no-risk arbitrage opportunity that day. Then, what do you expect? I would say trouble, at the very least. It does not mean much in a way but her TFSA account went from 206,615$ at the end of 2009 to 220,485$ at the end of 2012. Assuming 2010-2 additional yearly 5000$ contributions, it definitely looks like she lost her momentum when she stopped making swap transactions although I suspect (and this is the sad part) that most of the increase in market value in 2009 was not due to the swap intra-day decision inputs but from market movements. It's a relatively tough decision but, FWIW, I fully agree with it. One has to look into the intent of the law and the intent of the person. I find that the substance of the transactions did contaminate her TFSA account in 2009 and, because of the domino effect, whatever happened after has to be interpreted in the light of the 2009's actions. The CRA has been quite active in some accounts and it has been reported that 80% of the amounts recovered have been related to the "advantage" scenario that is exemplified above. Only a small amount is recovered from what is considered to be day trading activities. FWIW, I've had my share of inquiries and, so far, have been able to walk away free because of extensive documentation and because of an ability to show equivalent or proportional "behavior" in non tax-deferred accounts. There are grey zones but some lines should not be crossed. I submit that Ms. Louie went too far. Dura lex sed lex.

The San Francisco Bay area may feel some its warmest temperature ever this weekend and PG&E, despite being bankrupt, remains deeply involved until proven otherwise and new claimants would tend to build a higher priority through an already complicated resurgence plan.

The underwriting cycles are all different and it won't be different this time but this last one is shaping up for a rude awakening. In hindsight, 'observers' pinpoint to causes for the turnaround and this time 'social inflation' may be labeled as such but would offer the opinion that it is not such a great variable in the grand scheme of things although it can be a significant contributor in some segments and, recently, social inflation costs have gone up to some degree. If interested, the following may be interesting: https://www.instituteforlegalreform.com/uploads/sites/1/Tort_costs_paper_FINAL_WEB.pdf Pretty significant but the land of the free hasn't been incompatible with an it's your fault mentality and, in a way, this is nothing new. Once you adjust per capita, for general growth and for inflation, the recent divergence is much less impressive. Much has been said recently in the industry about cost inflation and a car accident where the transfer of energy equivalent to shaking your head while laughing can result in multi-million awards. The Berkley people have recently discussed this topic and have weaved the issue into a larger concern of resentment which makes sense and needs to be watched if larger issues are your thing. In the discussion of recent underwriting results, Mr. Berkley used an analogy which inspired the following table, with assumptions based on historical numbers but yet ending up very subjective. Just see it as a concept. When underwriting results deviate from the initial estimate, which is the essential challenge of the industry, sometimes surprises occur. Which variables are key here? A-How fast do you adjust reserves and pricing to the new target (there is a large variation in the industry here which is related to the receding tide analogy) B-How fast do you respond to a rapidly moving target (a variable linked to the initial underwriting decision and related to already built-in contract terms, limits, risk selection etc) C-How conservatively the reserves are set (for example within the range submitted by internal and outside actuarial valuation) D-Capital structure and financial flexibility that allow to opportunistically pound the hammer when the hardening occurs On a scale from 0 to 10 (from atrocious to amazing), here's my subjective evaluation based on the historical performance at Fairfax and based on where they stand now: A-6 B-6 C-9 D-3 They have greatly benefitted over time from setting reserves at a very high level and then releasing them but this pattern will be affected by general trends which don't look favorable right now. Also, their capital structure is relatively levered and the float contains a relatively high level of equity (and unconventional) exposure. The present situation with the need to retain capital to grow the underwriting side while the stock price languishes at a discount to book value is a manifestation of that. I agree that the time to find out who has been swimming naked has shortened but it seems that some may be more naked than others.

Time is precious, was only relatively familiar with Mr. Spier but enjoyed the exchange. Investing in forming an adequate and relatively quiet environment seems to be a necessary ingredient for independent thought and perhaps can lead to the possibility of having some of the options that Mr. Spier has. I couldn't get the full meaning of the part in German but it seemed mainly about meditation. :) In terms of the process and form of the interview, I appreciated Mr. Spier's receptive take and thinking-slow and humble kind of answers which were formulated in a way to express a personal opinion while also taking into consideration the perspective of the interviewer and the potential audience. Mr. Spier, during your interview, reminded me of Grant Williams, who is an interviewer I appreciate: functioning with an open mind and a measured pace. Looking forward to the second part.

The critical variables defining that project now are: division, uncertainty and economic viability. The minority government adds some uncertainty but with the election, now the Parliament contains 278/338 elected under a banner that support the expansion project and 67,5% of the votes went to the two parties supporting the expansion. It also seems that (despite noise) a majority of British Columbians would support a well articulated project to get the deal going. I would that ingredients are present with a reasonable chance of a constructive and unifying outcome.

The following summarizes well the last restructured bail-out: https://www.reuters.com/article/us-wework-softbank-group/wework-board-accepts-softbank-rescue-deal-source-idUSKBN1X11JN Read somewhere this AM in the populace comments section: The departing CEO, on his way out, has negotiated a name change for the now qualified moonshot investment: YouWork/iRetire In debating terminology, this is like using an extreme example to make a point or to show how the opposing view is wrong. I would say this is not only entertainment but also history in the making.

https://www.insurancejournal.com/news/national/2019/10/21/545886.htm This is not going according to plan and there may be more than a fly in the ointment.

The issue is trust and is based on some kind of 'social' contract. I see your point in the above bolded part but, without taking the statement completely out of context, I submit that it may reveal an interesting aspect of your thought process. When I was in a learning phase which involved some kind of apprenticeship, one of my mentors used to say: "There is my way (the right way) of doing things and there are other ways. Do you think there are two kinds of humans? On a related note and going back to the climate change thing (also useful in investing, I would say), you may want to read an interesting book: https://www.amazon.com/Wisdom-Crowds-James-Surowiecki/dp/0385721706 The main idea is that crowds can be right and there may be ways to maximize that outcome for the public 'good'. Here's a relevant summary of the thought process: https://thinkbynumbers.org/books/wisdom-of-crowds/ You may find interesting that both 'sides' of the climate change equation (does it exist? is it significant? is it caused by humans? what can we do about it if?) suffer from criteria that can lead to failure of crowd intelligence. The best decisions seem to come when a diverse range of opinions, including experts and non-experts can be efficiently aggregated ("some mechanism...for turning private judgments into a collective decision"), without a hysteric component. Basically, this involves a tension between independence and cooperation. Let's keep the contest alive.

Pretty stunning, but most on this board felt it was a lowball at the time, and Fairfax/ABH (RFP)'s actions were super shady... and Fibrek board was ... something bad. :) First appraisal rights situation I had followed loosely, so I wanted to follow up. For those who had or still have an interest in the topic, here's the complete judgment: https://www.canlii.org/en/qc/qccs/doc/2019/2019qccs4003/2019qccs4003.html?searchUrlHash=AAAAAQALZmlicmVrIDIwMTkAAAAAAQ&resultIndex=2

Zerohedge and Mike Sherlock - you need better sources. I would say all sources are welcome but one needs to come up with some kind of a weighting factor for the quality of the evidence which requires to look at the raw data and methodology and also, perhaps after the fundamental check, to assess for potential biases and poor incentives. The Zerohedge link raises several interesting questions which have been reproduced many times by the skeptic side. For the wildfires 'real' data over the twentieth century, the data, as presented, suggests that present climate trends are perhaps irrelevant but raises also the possibility that fire suppression efforts have been too strong and have allowed for a build up of 'fuel', suggesting that the present rising trend may be more ominous, at least for a while. However, when assessing the value of the 'real' data, one finds out that the pre-1960 data used a different methodology and included an unusual amount of incendiary fires. The peak in acreage burned seen earlier in the 20th century also involved a different region of the US (southeastern) which suggests that perhaps apples are compared to oranges. I assume wachtwoord meant conformist (a person who conforms to accepted behavior or established practice) which refers to the authority bias that the author of the post wants to protect (the lazy collectivist) 'us' from but the misspelling suggests the possibility of a confirmation bias (the tendency to search for, interpret, favor, and recall information in a way that affirms one's prior beliefs or hypotheses). :)

To complete the picture, here's a quote from their 2000 annual report when the ICICI-Lombard 'venture' was first mentioned: "After about five years of watching the developments in the state owned property and casualty industry in India, Fairfax was able to announce a joint venture with ICICI, a dynamic Indian commercial bank, as the Indian government decided to open up the industry to foreign investment for the first time since 1972. The joint venture, called ICICI-Lombard, gives us a maximum equity interest of 26% (under current law) for a capital investment of $10 million. This project required a significant commitment from a Fairfax-wide team to complete. Congratulations to Chandran Ratnaswami, Paul Fink, Jim Dowd, Jim Migliorini, Byron Messier, Kim Tan and many others for providing this long term opportunity to Fairfax. We expect to be writing policies this year." So a spectacular result built from scratch and sold in waves. I've heard that there is a statue of Sir John Templeton in their head office and, given their historical investment style associated with marginal to spectacular successes and failures, Sir Templeton apparently has said, at some point, that an investment manager will do well if he or she is right at least 65% of the times. I've come to the conclusion that this benchmark needs to be met again in order to warrant a capital commitment and I'm still looking to be convinced. But thanks for the update and will look forward to your inputs.

Let me correct that for you. Libertarian Science The belief that government intervention can put science in a box and limit progress. Nice one. :) Not only that, remember it's the government that mainly funds science so they can certainly bias its direction as well. So, if the issue is for the government to control, direct and introduce bias as a primary driving force, how do you reconcile with the following: 1-federal funding of R/D per GDP has been decreasing, 2-federal funding versus corporate funding ratio has been going down and 3-federal funding to environmental science has not increased despite the dogmatic and alarmist take described above? https://www.aaas.org/sites/default/files/2019-06/RDGDP.png https://www.aaas.org/sites/default/files/2019-06/USFund1.jpg https://www.aaas.org/sites/default/files/2019-06/Disc-1.jpg Disclosure: I think a balance between corporate and public funding allows to find a compromise between basic research which is necessary for long-term outcomes and also produces constructive surprises, and more applied research with potential short-term applications and profitability. A constructive discussion may help to help define that balance, governance and incentives but I don't understand how undermining a model that has worked so well can not result in less progress or even regression.

A similar paradigm has played out a few years ago with the ozone depletion challenge. The science was relatively uncertain and diehard skeptics as well as paid consultants by vested interests suggested that the ozone layer depletion and hole concepts had natural causes unrelated to human activity (or CFC compounds) and that nothing could be done to change the outcome. To figure out the best outcome, people came together, determined a reasonable course of action and the ozone depletion has reversed and it looks like it will re-normalize in a few decades. These slow evolving challenges need slow thinking but sometimes decisive actions. https://en.wikipedia.org/wiki/Ozone_depletion https://en.wikipedia.org/wiki/Montreal_Protocol https://theconversation.com/the-ozone-hole-is-both-an-environmental-success-story-and-an-enduring-global-threat-100524 "The Montreal Protocol was the first international treaty to address a global environmental regulatory challenge; the first to embrace the "precautionary principle" in its design for science-based policymaking; the first treaty where independent experts on atmospheric science, environmental impacts, chemical technology, and economics, reported directly to Parties, without edit or censorship, functioning under norms of professionalism, peer review, and respect; the first to provide for national differences in responsibility and financial capacity to respond by establishing a multilateral fund for technology transfer; the first MEA with stringent reporting, trade, and binding chemical phase-out obligations for both developed and developing countries; and, the first treaty with a financial mechanism managed democratically by an Executive Board with equal representation by developed and developing countries." (my bold) Since then, some 'statisticians' have built models to show how many lives were saved by lowering the incidence of malignant melanomas (skin cancers) in relation to the application of the Protocol. One can criticize these models as to how many lives were saved but I can live with the potential range of outcomes.

A way to make up your mind may be based on instinct, gut feelings, superficial or technical aspects but like value investing, it may be helpful to, if the topic really interests you, to take a look at fundamentals. Just like going through 10-Ks and coming across various opinions, a healthy dose of skepticism is necessary and echo-chambers are to be avoided. Incentives also matter. Do you still believe in your institutions? It seems that trust has gone down and the pendulum has been swinging to a somewhat darker age context but below is a reference that was produced by your 'deep state' but I find it has value. It describes the historical context and evolution of the scientific position on the topic and addresses concerns mentioned by posters above. There is no certainty here and you may want to define yourself a margin of safety. The scientific approach for such a question cannot be purely experimental. The meta-analysis field is very credible and is a way to combine findings in order to increase or decrease the weight of the evidence. On a weighted basis, it is getting warmer and human activity has been a significant contributor. https://fas.org/sgp/crs/misc/R45086.pdf You may also want to follow Mr. Bill Gates on his blog (do you think he is a nutty and fraudulent ideologue?) and read his upcoming book on climate change to be published in 2020. Given the intellectual challenge by the younger generation and after having looked at the relevance of these changes in relation to potential investments (ski resorts, PG&E), I've been impressed by the longer-term trends and how non-linear changes could occur. My thinking has evolved significantly after looking at fundamentals here. BTW I have appreciated that my climate has been getting warmer and my summers longer. But you can choose to avoid factual or rational discussions but it may become hard to care and ignore at the same time.

It appears that the 'story' has evolved (murkier?) with a new buyer and a slightly different price tag. https://www.insurancejournal.com/news/national/2019/10/16/545668.htm The official line continues to be the "channel conflict" issue but, even if the picture is incomplete, there are red flags that suggest that the issue may have been more 'cultural'. https://www.consumerwatchdog.org/news-story/flash-report-ricardo-lara-was-it-money-laundering-bribery https://yubanet.com/california/release-of-calendar-and-public-records-suggest-lara-made-first-contact-in-pay-to-play-insurance-scandal/

^This is an exercise of (trying to) translating backward-looking returns into forward-looking returns. The following article supplies a graph that decomposes the returns over time periods. A backward-looking trend about diminishing alpha returns is clear and the relative outperformance during the last downturn (what Paul is describing) hasn't made much of a difference overall. https://www.marketwatch.com/story/buffetts-formula-is-still-working-if-you-know-where-to-look-2019-05-22 FWIW, I think what Mr. Buffett has achieved in the last period (to match the S&P 500 with such a size and in such an environment) is truly amazing given his historical investment mindset (he constantly adapts). And IMO this was achieved in a context where he has built ammunitions to maintain (or even to increase) his (or his legacy's) edge. But it's understandable that some people are losing their patience.

On the tax-efficient transfer topic, Let's make this work in progress and there will be more to come from my part, in due course and in a separate thread. It seems that the best time to do such transfers is during marked to market dislocations. :) Back to topic.

I wonder what the conditions were in those promissory notes. [ :- ) ] Transfer of non-cash generating assets to the kids at low prices. - - - o 0 o - - - When I was young, I had a boss, that when he was young was serving a client - a lawyer of high age, who was wealthy. Because of high earnings combined with frugality he had become wealthy by buying real estate. He had started deliberately & gradually transferring properties to his kids, starting with the properties with the most louzy cash flow first, some even with negative cash flow, because of the mortgages. My boss asked him why he did so [The lawyer was old and alone. He had lost his wife, who had passed away.] His answer was : "That way I'm sure that my kids still visit me!" [ ; - D] Side note: Interesting that you describe a trust but verify situation while transferring value from one generation to the next. I've been looking into an estate freeze 'strategy' for my business, which implies, in my neck of the woods, to alter the structure of the company and to issue new preferred shares (fixed income) that freezes the value for the owner (tax deferred until the last breath) and new regular shares to the offsprings whose value will grow over time (more tax deferral). The key issue is control, whose loss of can only be deferred to some degree. It is possible though to set up voting rights or involve a family trust (where the owner remains a trustee) in a way to (economically) maintain contact with the next generation. -----)back to the thread dealing with Wedgewood throwing the towel and sale move as a potential contrarian indicator to buy BRK.

Nice update on your line of thinking, which has been consistent. Accepting the possibility that you may be right to "outsource", to some degree, the timing of investments (which really is not timing but sticking to internal yardsticks by Mr. Buffett {and IMO not thumb-sucking as implied by the Wedgewood move}), a potential weakness of the model may be that the IV floor that you describe may move down, as perceived by the markets, when fat pitches come along, given how progressively correlated BRK has become in downturns (typical time to use the elephant gun) and given BRK's relatively high exposure to financials. As John Hjorth alludes to above, BRK is built to last but a question remains: is the relative advantage for BRK in downturns and the ensuing recoveries sufficient, on a relative basis?

From reported numbers and other inputs, it is interesting to try to come up with a 'breakeven' occupancy number and to define the path to profitability. Changing course (lowering growth) even without extrinsic economic shocks needs to incorporate the facts that: 1-We has paid a dear price for some leases, 2-We has included lower or free rent concessions for a while in some contracts and 3-We has committed significant capital to improve the value of the space for renters. If you are SoftBank, what do you do? You double down! This has the ingredients to become a story where the equity seemed cheap at 50B and will seem expensive at 5B. Then they say markets are efficient. http://aswathdamodaran.blogspot.com/2019/09/runaway-story-or-meltdown-in-motion.html https://www.hbs.edu/faculty/Publication%20Files/Final%20Version%20WeWork%20Article%20HBS%20Header_91efe3b9-fc0b-408b-b29e-d7d365a245b2_f7f6a0fa-cf26-4caa-99cc-3653fc8e6dc6.pdf#page25

The California legislature has provided and is likely to provide more implicit but conditional support. Despite popular backlash, oldco is likely to continue to play the regulatory capture game, an area where they still possess a relative edge. I find the debtors have done a decent job, with nature cooperating. Adversaries have come and include the Elliott Group and the aim of the vulture group is to get their part of the flesh but their true intents may become all too apparent at times (see docket 4119, exhibit A). https://restructuring.primeclerk.com/pge/Home-DocketInfo It seems like the Judge may appreciate the superior value of the way to deal with subrogation claims, as described by the debtors. Interestingly, from what I can gather from public disclosures, Baupost has been able to buy various subrogation claims over time (total value about 2.6B, bought at around 30 to 35% of 'face' value) and they would recover 11/20B under the proposed plan. One has to deduct an uncertainty premium and the value of time but Baupost (which remains a large holder of common equity), at least on that level, would do very well with their 'distressed' subrogation claims.

Humble opinion here, after having discovered and reviewed previous comments made on this Board years ago. Disclosure: I was a Fairfax shareholder then and intensively looked at how money could be made somehow with ABH and FBK. The definitive opinion may change after reading the whole judgement but this seems to be the price to pay for playing the game between legal rules and ethics. There was a conceptual flaw from the start (especially versus the fair and friendly and not hostile culture mindset) by actively pursuing an acquisition where Fairfax was a significant shareholder in the bidder and the target. The relevant National Policy 62-202: Take-Over Bids Defensive Tactics, indicates that “[t]he primary objective of the take-over bid provisions of Canadian securities legislation is the protection of the bona fi de interests of the shareholders of the target company.” Regulatory bodies then focused on a majority concept of the take-over which did not take into account that this majority was possible by the inclusion of a party which had diverging interests and that this basic fact likely contributed to a financial oppression of Fibrek's minority shareholders. Higher Courts eventually deferred to the regulatory body's decisions so that Fairfax got the legal nod to proceed. But one has to consider that this would not have been OK under other legal jurisdictional auspices. It seems that the September 2019 judgement is, somehow, an attempt to correct an unfair outcome for minority shareholders but the Court seems to omit that this process had been anointed with a legal seal of approval in a contemporaneous way and perhaps the judgement is an attempt to bridge the definition of fairness, from legal to ethical. It's not the job of the legal system to do this but it's an interesting side effect and a reminder to legislators.