watsa_is_a_randian_hero

One small caveat to this though is that Buffett has not committed to buying at 110%. He may, he may not. I think he's clarified that a couple times. In particularly weak markets he may have better opportunities and he doesn't want traders to think he'll always be there to buy at 110%. With that said, it does seem likely that buying at these levels should result in investment returns at least equal to the growth in BV. But it's not quite riskless. Completely agree. :) Furthermore, while this "put" provides some technical support, it is of no real fundamental value. Would fairfax have bought its CDS on MBIA from MBIA? No. Why? Because such a contract would inherently be worthless. Buying a put contract on goldman sachs with goldman sachs as the counterparty would similarly be of little value.

yeah...hes either an idiot or intentionally deceiving. operating cashflow for an insurance company is usually meaningless, unless you calculate some hypothetical "investment in statutory reserves" to subtract, similar to capex for a manufacturer. For an insurer (not that berkshire is 100% insurance), none of that cashflow is distributable to shareholders...its all required to meet statutory reserves.

by the way...just to show how ridiculous the notion of including investments at face is...look at it for fairfax. That would imply a 1125/share value, without giving any credit to operating earnings. I'm not going to quibble over the precise value of Fairfax, but I know with certainty it is less than 3.65x tangible book. Finally, just to be clear, I hold Berkshire and think that it is a good value. But I think it might be more like a very safe 85 cent dollar, rather than the 65 cent dollar tilson claims it to be.

I will never be the first to defend Tilson, but in this situation he is right - pre tax earnings do NOT include insurance earnings. Look at any of Buffett's letters - he tracks non-insurance EBT and investments both on a per share basis. Tilson adds zero originality to the analysis, he just copies Buffett. yeah...i know that they insurance earnings are not included in the operating income section in buffett's letters. However, Buffett is doing it for a reason. Tilson thinks he can value Berkshire better than Buffett can? You can't give benefit to the assets of an insurer, give benefit to the earnings of an insurer, and ignore the liabilities of an insurer. In fact, just giving benefit to the investments, while ignoring the earnings/liabilities, would lead to overvaluation of most insurers. Even if the average insurer did earn a 100 combined ratio (which they don't), it is still assuming risk to get the float. The investments don't come free. A 100 combined ratio on average still means a big loss in a year with a Katrina. Why take on the risk for free? Most insurers are worth less than their investment portfolios. Furthermore, because insurers like fairfax & brk are corporations that pay taxes, their portfolios are definitely not worth face value. Income earned earned off their portfolios will all be taxed twice, once at the corporate level, and again when they are paid in dividends to you.

I think Tilson overvalues Berkshire. He double counts the insurance business by counting the value of investments and the operating income from the insurance businesses. Also, he acts like a 10x multiple is conservative...but its a multiple on pre-tax income. That is the equivalent of a 15x P/E multiple.

Well actually, the definition for productivity widely accepted among economists says just that (assuming they work the same number of hours on average). "Workforce productivity is the amount of goods and services that a worker produces in a given amount of time." (the value of those goods & services measured generally in a common currency) http://en.wikipedia.org/wiki/Labour_productivity

+1. this is what makes me afraid to short. On the one hand, I'm cautious with anything exposed to china (commodities, japan, australia). On the other hand I don't know if I'd actually short because of what you've said here. I'm by no means an expert, but from what I've read I believe only a small fraction of their population is educated and/or urbanized. In addition, China nationally has massive reserves - it would seem to me they could just use this to fund any necessary stimulus if they hit a speedbump. On the flip side, as a believer in free-markets, I would have to bet that 1 of 2 things happens in the long run. Either they will have a massive correction because of government mis-allocation of resources (ie, building empty towns, as rumors mention), or they will continue to become more and more capitalistic/democratic.

wut

This is not directed at Santayana, but I have had the desire to block or at least "prioritize" posts in some way. Anything where you could "follow" specific people, or threads were assigned stars (like yahoo finance), where you could quickly sift through what is a BS thread and what is not. In addition, I'd like to vote to add a "Macro" category. It seems like a lot of discussion under investment ideas or general discussion is related, I think this would help organize the board better. my 2 cents. Hi Watsa, I understand your sentiment, but I don't want a board where if someone doesn't like what someone else is saying, you just block them out completely so you don't have to listen to them. How un-American would that be! Do you know how often I wish I could just censor Newt Gingrich or Glenn Beck! ;D But that wouldn't be right would it. Having to listen to other people's opinions should only reinforce your own analysis and logic if it makes rational sense. When we tune out others, it's actually ourselves who we are limiting from the intellectual debate. Generally I have a chat with anyone who causes issues, and they are given fair warning before they are kicked off. I'm not averse to one poster having an exchange with another poster, as long as it is brief. The way me and my family work, and I consider this board and its members part of my online family, is that if you have something to say, you say it, and that usually clears the air. So I would suggest that the two posters (Santayana and Moore) focus on the post, rather than attack each other. You guys have gotten it out of your system...great done! Move on. You are both right in fact, but neither may want to admit it. Obviously most of you know I was pretty long in the last few months, and I don't think investors were being intellectually honest with what the actual economic numbers were showing. There was a recovery in the United States, and the numbers plainly showed it. At the same time, it is far too early to call it a full-blown, long-term recovery, as growth is very weak and housing remains completely stalled. I'm more concerned of a Depression in Europe than I've ever been, so all of us longs need to get off of our recent high-horses...things will remain choppy for some time. As someone else stated, this is a value board...who cares how we did in the last few months, or even in the last few years! Cheers! Parsad: I am not saying ignore others opinions. I'm saying time is a scarce resource. Maybe we should "invert." Rather than an option to ignore certain posters, what about an option to "follow" certain posters? Where you could either view all posts, or click a button and immediately view only posts made by those that you are following. Or something where posts are "starred" or "thumbed up" (or down) by the community. something...anything...to help sort through the number of posts. The board has seemed to have grown (or I could be getting lazy)...but there are a lot of posts lately. For someone like me, who visits maybe 3-4 times a week, literally hundreds of posts could occur between visits. Something to help sift through the posts would be helpful. I understand if you have time constraints on your end though and this isn't feasible (btw, thanks for moderating!).

This is not directed at Santayana, but I have had the desire to block or at least "prioritize" posts in some way. Anything where you could "follow" specific people, or threads were assigned stars (like yahoo finance), where you could quickly sift through what is a BS thread and what is not. In addition, I'd like to vote to add a "Macro" category. It seems like a lot of discussion under investment ideas or general discussion is related, I think this would help organize the board better. my 2 cents.

Bank of the Ozarks is another I would consider exceptional. However, it is priced much more richly. I own a few shares of it just to keep it on my watch list.

What makes you think fcbn could one day have a market cap the size of US Bankcorp? Anything's possible, but out of all the tiny banks what is special about fcbn? --Eric -Their financials going back to 1992 are available electronically through SEC EDGAR and their website, they speak for themselves. I've also attached here. -The company has a 80 year track record of expanding TBV at a steady rate with very conservative underwriting. -Over the last 20 years, ROA has averaged 0.9%, ROE 12.5%, and ROTBV of 15.8%. This would imply estimated normalized EPS of roughly $90 - $107. -Over the last 20 years, the worst 3-year ROA was 0.8%, ROE 10.9%, and ROTBV of 13.0%. This would imply downside average EPS over a 3 year period of roughly $78-95. -As a testament to their conservative underwriting, FDIC has literally be giving them failed banks to take over. [if you look at their loss ratios, make sure to adjust for FDIC loss guarantees] -Company is very conservative. Same founding/controlling family also founded/controls FCNCA, which is a larger bank in NC. Throughout the housing boom, they participated minimally in secularization and retained most of their own loans on their books (eating their own cooking). -Current TBV is $617. Assuming a normalized multiple of 1.25x TBV (conservative), and assuming compounded TBV growth at 15% (lower than historical), FCBN would be a 100-Bagger in 28.5 years. You asked for 100 baggers within a 20-30 year period...this (and maybe FFH) are the only 2 stocks I own that I would say legitimately have a chance. -2 main risks here: -1st is liquidity...very illiquid. -2nd is fraud. I would say the fraud risk is mitigated to a degree by the fact the FDIC has handed them several failed banks to take over; each time it can be viewed as a stamp of approval from the FDIC. It is also mitigated by the fact the same founding/controlling shareholder family also controls FCNCA, a larger bank with perhaps more scrutiny on it. 2011.10.31_-_First_Citizens_Bancorp_Inc.xls

fcbn

meh...based on his background/decisions he didn't see like much of a financial pro to me...seemed more like he had a string of good luck and was a good client relationship manager/salesperson.

+1 Go Bucks

Analogy: Good companies aren't necessarily good investments. Bad companies aren't necessarily bad investments. Good economies aren't necessarily good times to invest. Bad economies aren't necessarily bad times to invest.

if they are not trading to take advantage of these swings, I agree, mediocre quarter. reason it is mediocre is because while bond portfolio is MTM based on interest rates, the insurance liabilities are not. As the risk free rate either moves up or down, to the extant FFH keeps their bond portfolio unchanged and matched duration to their liabilities, there is no gain in intrinsic value.

My position hasn't change since I last posted. I have a put spread that expires in 2012, entered into when the stock was at 170-180. Loss was limited to that put spread. I have no remaining exposure to NFLX. I'm not sure what your reason for posting that is since supposedly all you cared about before was "risk control," and not whether the stock actually went up or down, when I clearly stated I used position size limits and put contracts to limit risk. ^^Last post on the topic Believe some on this board are owed an apology from HarryLong. $86 AH print. I'd actually consider opening a long position based on valuations at sub-80 levels, IF it were not for fears regarding their business model (no real moat) that was part of the original short thesis.

Not that you're viewing a forward PE but rather that you are looking at a PE based on dramatically peak earnings. A 12X on operating eps of $100 (or thereabouts) is not even remotely relevant to a cyclical data set. It's no different than saying CAT is cheap based on $6 eps when in fact mid-cycle eps is probably more like $3.50 or $4. And I won't even get into the danger of relying on Fed "money printing" when in fact the Fed is merely swapping non-interest bearing liabilities (cash) for an interest-bearing liability (treasuries) - that does NOTHING in a deleveraging environment. Just would point out the counterargument here...I wouldn't characterize an environment with over 9% unemployment as "peak" earnings. Yes we are likely to be in this mess for an extended period of time as deleveraging occurs, but nonetheless I do not think we are at "peak" earnings here.

5. Real estate assets. Federal Government owns approximately 703 million acres of land still. http://www.propertyrightsresearch.org/2004/articles6/state_by_state_government_land_o.htm 6. IMF special drawing rights

anyone look at Kinki Sharyo Co (TSE:7122)? Trading for near cash value. I'd be interested in hearing from anyone familiar with this company.

I have suggested in the past a solution to the growing board size...This would be an option for a user to "Follow" or "Subscribe" to certain members. This would allow a user the option to view the full board, or filter for certain users' posts.

Not sure where he gets his data for his ratios of gold/world assets.... ...but his basic premise that gold/world wealth should be a stable ratio, is something a believe (partially). I think gold should rise, over the long term, at a rate greater or equal to inflation; but equal to or lesser than nominal GDP (it can't rise faster than nominal GDP...or nobody would have any money to buy it with...). Over the last century, world-wide nominal GDP figures are not the most accurate. However, using US GDP as a proxy...in US currency terms Gold has risen an average of 1.0% over CPI over the last 90 years, but -2.4% under nominal GDP over the last 85 years (see attached chart). I would guess other "real" assets, such as real estate, would show similar return profiles (higher than CPI, but lower than nominal GDP).

My position hasn't change since I last posted. I have a put spread that expires in 2012, entered into when the stock was at 170-180. Loss was limited to that put spread. I have no remaining exposure to NFLX. I'm not sure what your reason for posting that is since supposedly all you cared about before was "risk control," and not whether the stock actually went up of down, when I clearly stated I used position size limits and put contracts to limit risk.

I can argue that position sizing is an unwise form of risk control quite easily. To quote you: "I'm bruised up on this one. Short since 110. Been adding to the short along the way. Started just with puts, now shorting outright." If you had kept on just the outright short, your position size has almost doubled. see my post on your "risk control" thread. I maintain position sizing is a valid form of risk control. If a short grows beyond a comfortable size of portfolio (x%), you cover a portion of it. The Netflix position is not something I have lost any sleep over, as I have always kept it below a threshold level as a % of the portfolio.