jfan

Looking at their insurance subsidiary reserve triangles. A few things seem to stand out to me (caveat: not in the insurance business) 1) Insurance subs with large premium contribution and consistent favorable reserve developments - Northbridge and Odyssey Group - roughly speaking, Northbridge/Odyssey Group pays out 50% of their policy payments within the 1st 5 years then it tapers off. - Eyeballing it, these 2 sub roughly write 2x the reserves for all their policy promises 2) Insurance subs with large premium contribution but turning around reserve developments - Crum & Forester - 1st year of favorable reserve development in 2022 but since 2016, their re-estimated reserves are consistently greater than the cumulative payments for each respectively calendar year 3) Insurance subs with large premium contribution but still struggling with reserve developments - Allied World 4) Insurance subs with small premium contribution and consistent favorable reserve developments - Zenith * Didn't look at Brit's triangle This suggests to me that the combined ratios that we see today is really a reflection of the underwriting that was done 5+ years ago . 80% of Northbridge's favorable reserve developments were written for calendar years 2012-2016. Similarly 75% of Odyssey's favorable reserve developments were written for calendar years 2012-2016. Would this not suggest that their combined ratio should remain sub 100% for more than a few years, especially since most of this reflects their underwriting from 5+ years ago during the soft market? With their insurance writing into this recent hard market, we see the premium growth but with other players having such capital constraints, they have been able to take a big relative advantage of this and presumably have some better than recent historical 95-100% CR in the future. Long and short of it. Even if the market softens, and assuming that the insurance subs avoid writing bad future policies, this suggests to me that they should be able to have better than average underwriting profit moving forward (even without IFRS 17 discounting) given the hard market tailwinds.

The Insurance Market Cycle: Hard Versus Soft Markets - Cottingham & Butler (cottinghambutler.com) I understand your thought process here about the cyclical nature of the insurance business as well as interest rates affecting it. It would be lovely to have a hard market that last as long as the recent soft market. I certainly can come up with a narrative that interest rates will likely remain higher for longer vs returning back to their lows over the past decade. With many insurance companies mal-positioned over the past decade (in terms of their investment portfolio), how many of them will have the capacity to write more policies, or raise capital at attractive valuations to do so? Furthermore, with higher interest rates, will alternative sources of capital (eg private equity) have increasing difficulties raising funds effectively to buy these poorly performing insurance companies? Am I way off base if I assume that the average hard market typically last 4 years? And if this one started in 2018, the cycle should have moderated at this stage and more premium growth unlikely to persist? If the above narrative plays out, how much longer could a semi-hard market last? one? two? more years?

A few random thoughts. On Money Money has 3 functions: 1) Store of value 2) Medium of Exchange 3) Unit of Account Bitcoin at this current stage is becoming a store of value (at least that is what the narrative Bitcoin bulls are spreading to others). It is not yet a medium of exchange nor remotely close to a unit of account. According to folklore, money needs to progress from #1 to #2 to get to #3. This seems logical from a first principles perspective: something needs to considered valuable before people are willing to trade goods and services for it. Something needs to hit a critical mass of the population who use it as a medium of exchange before it can be considered the widely accepted base unit of account. As a money evolves, people are willing to lend it and others desire to borrow it. The interest rate is the price of time. (lenders give time for borrowers to use today) This price, historically, is driven by market forces (supply and demand) as well as government decrees/policies. Historically, across different civilizations, governments tend to centralize the control of money over time. Politicians tend to expand the money supply and suppress interest rates which often lead to asset bubbles. The reasons are often well-intentioned. The initial rationale is to help their populace who might be suffering from some calamity. The problem is that after the initial support, the temptation for continued growth is too great. Hence, the rise and fall of monies and civilizations over time. F.Hayek pontificates on what good money would look like in his book "The denationalization of money". He includes a diagram of a normal distribution on its side. A good money can fluctuate over its central tendency as driven by market forces (it does not need to be without any variability). A bad money has a tendency to skew one way or the other over time through political manipulations. Hayek envisions a competition of private banks doing this job. With well-managed private banks that have good money winning out in the end. Bitcoin is interesting because there is no nation. Its monetary policy is difficult to change (unless enough miners agree to alter the algorithm but even then, enough nodes need to agree to these changes, or otherwise a fork occurs). IF bitcoin continues to monetize globally, I'd imagine that the cost of borrowing bitcoin will fluctuate with supply-demand dynamics that is relatively free from political manipulation. The price of time would have trend towards its natural value which in turn reduce the magnitude of asset bubbles and mal-investment in uneconomic ideas. What affect will this have a country if they hit some economic snag if Bitcoin was global accepted as a medium of exchange and unit of account if no centralized party can alter its monetary policy? I wonder if this process is gradual enough, that people will actually be incentivized to save more (in bitcoin) and disincentivize people from borrowing beyond their means especially for personal discretionary consumption; thereby reducing the need for centralized political intervention? On Double Spend Double spending would require that some control 51% of the hash rate to re-write the blockchain. If the Forbes article Why Does Bitcoin Use So Much Energy? – Forbes Advisor Canada is correct in its estimate of 127 terawatt-hours annually, this means that the cost of run the network is ~ $23 billion if the average price of electricity is $0.18/kwh. Electricity prices around the world | GlobalPetrolPrices.com Below is the hash rate distribution according to Statista for 2019-2022. Bitcoin mining by country 2022 | Statista I would be curious to see what the global adoption of bitcoin is? Do bitcoin holders reflect the hash rate distribution or not? More questions. Few answers. .

@Luca Jason Lowery describes the digitization of crypto-mining energy spent via its proof-of-work algorithm into bitcoin is analogous to the mathematical phenomenon known as Gabriel's horn. This is where the volume of the horn trends to a fixed value as the horn gets longer but the surface area of the horn continues to grow without a definitive end value. He has a nice diagram in his thesis describing how this physical world (real energy spent) transfer into the digital world (as represented by the bitcoins in circulation). The way I understand how this works is this: Imagine if you own the only bitcoin miner in the world. It costs you a certain amount of electrical costs to mine bitcoins (ie receive block rewards). You keep all your BTC mined. If say @Dave86ch gets a miner too and starts mining as well. The total energy spent by the both of you is now greater but your proportion of total energy used is reduced by 50%. If say @rkbabang gets a miner, then both of you will have a smaller proportion of energy spent. As more miners join the party, the 3 of you will get a smaller and smaller proportion of energy spent (ie hash rate). This is similar to when companies issue more shares and existing shareholders get their ownership diluted in the physical world. However, the total new energy (ie $ spent on electricity) spent by the 3 of you and everyone else is divided by the total number of new BTC mined (the marginal BTC minted) in the digital world. And because each BTC in the existing supply is fungible, this marginal production cost represents the "fair value" of BTC at that moment in time. The new successful miners will not likely part with their BTC unless it is well above the cost of their production. This drives the "rational" selling price upward. And lucky for you, the BTC that you originally mined at a much lower cost, gets the benefit of value appreciation from the new BTC mined by anyone else. So despite the dilution of your electrical energy spent (ie $ of electricity used, hash rate), the value of the BTC that you earned earlier does not get diluted and in fact increases over time. With an eventual asymptote of 21 million caused by the BTC reward halving cycles ~ every 4 years, the increasing difficulty adjustment built into the proof-of-work protocol, it will likely cause more and more electrical energy needed to mine the next set of marginal BTC rewards. This increasing energy spent has no specific upper limit (which is analogous to the infinite surface area of Gabriel's horn) but will trend towards a finite BTC supply (which is analogous to the finite volume of Gabriel's horn). So if people have now colonized our entire solar system and are mining BTC, this energy expenditure can still be represented by the fixed number of BTC. The above scenario describes the situation if everyone that mines, holds onto their BTC and does not transact with it. If people start transacting with BTC, there exists a transaction fee which currently is about 2% of the block reward. If we leave aside why someone would want to transact in BTC, is the network capable of handling 8 billion people? 16 billion? 32 billion?. Because the block sizes are small, only so many transactions by individuals can be processed at any point in time. The average is 10 minutes now but it can be longer if the transaction fee that you are offering as an incentive to miners for confirming your BTC transaction is too low as you compete with others to get into a block. So with more and more people transacting at the base layer, the fees will move up as well. At some point in time, the transaction fee will be greater than the actual satoshis/BTC being transacted. Which means that at some point in time, people will have increasing difficulty transacting at the base layer (due to competition for a block). This deliberate block size limit was placed to allow the smallest memory needed for the nodes in the system to store the blockchain ledger itself (to maximize decentralization) Therefore, although the # of BTC transacted in a block doesn't have an upper limit (Gabriel's horn's surface area), there is a limit on the # of individuals obtaining a block. This is where Layer 2 pooling of small transactions can take place and be confirmed later at the base layer in a single large transaction. (I'm not an expert with respect to the Lightning network, but this is my basic understanding of its purpose) Hopefully this answers a bit of your question about scaling as humanity grows and its adoption increases. Summary: 1) No upper limit on price (aka marginal cost of production/fair value) 2) No upper limit on the # of BTC transacted in each block 3) Therefore, scalable despite a fixed limit on the total # of BTC in circulation

Couple of interesting resources Lex Friedman Podcast with Yuval Noah Harari July 17 2023 24:00 - Money is the most successful story told. 25:00 - Cryptocurrency - Bitcoin story around the math 1:33:00 - Too much focus on power structure (struggle for power between parties) leads one to see that fighting is the only solution vs stories (which guide the underlying power structures) can sometimes be changed by conversations. (this in contrast to softwar's power projection theory) The Price of Time by Ed Chancellor is a good book on the history of interest across various civilization across time. Worth reading to see how governments have a tendency to manipulate them over time (often forcing them below 3% - which usually leads to troubles and bubbles) vs market-based pricing of interest rates.

BAM

Kahneman has a good book titled "Noise" that discusses the variability in decision-making and how to reduce noise in these processes. Ideas like: - used spaced estimates (separated over time) - relative comparisons are easier for the human mind comprehend than absolute scales - separate decisions/judgments into important components and evaluate them independently - mechanical aggregation is less noisy but people find this difficult to accept, and a compromise/complementary process is to ask people to reserve judgment until the end of the process (looking for the broken leg problem)

What is Money, Anyway? - Lyn Alden ** This is a decent write-up Bitcoin's Energy Usage Isn't a Problem. Here's Why. - Lyn Alden An Economic Analysis of Ethereum - Lyn Alden Proof-of-Stake and Stablecoins: A Blockchain Centralization Dilemma - Lyn Alden Article Archives - Lyn Alden - This link has a bunch of her articles on various subjects including write-ups on digital assets Library | Horizon Kinetics ** they have a bunch of articles written on the subject over the years Consensus Mining and Seigniorage Corporation - This is Stahl's bitcoin mining operations. They have a bunch of articles about mining economics here. They are planning to bring this operation public on OTC markets in 2024.

I skipped to section 5 first. His thesis is a bit wordy and quite repetitive in sections but has interesting ideas. These are a few concepts that I thought were useful. 1) Power projection theory - physical vs abstract power projection techniques - benefit to cost ratio as an indicator for outside attacks on owned resources - resources divided by the use of physical power trends toward decentralization 2) A Planetary computer coupled to proof-of-work protocol to convey a purely digital abstraction of real electrical power spent. This could be used as a non-kinetic technique to project "physical power" in cyberspace. Allowing individuals/communities/nation states to secure a section of the cyberspace/data resources as their own. 3) Gabriel's horn - finite volume with infinite surface area as applied to proof-of-work tokens such as bitcoin (fixed supply with infinite electrical power/user representation).

Lyn Alden and Horizon Kinetic Papers are great primers as well.

Surprised they didn't combine with an ordinal to create an NFT. @rkbabang @Castanza thank you for the copy. I glanced through it already and it seems very interesting.

Many thanks to both of you

Wow...it's been shut down already

https://aul.primo.exlibrisgroup.com/permalink/01AUL_INST/u9e6on/alma995901882406836 Out of print. But the above link connects with an online copy.

Thanks @Longnose That was a really interesting perspective. I purchased the entangled life book. Seems promising. On a side note, I find it amusing that the law firm representing the GBTC lawsuit against the SEC, is none other than Munger, Tolles & Olsen.

I have a friend who was a successful CEO of a public traded company that got bought out. His dream was always to become a doctor. He got into medical school in his 40s and trained for 8 years to become a specialist. He is now in his 60s. Still practicing and working harder than most people younger than himself. I think he loves the work, but I know he doesn't love the healthcare system and all its friction points. Being a doctor, you have a different set of task masters you have to answer to and the constant grind of interpersonal conflict is, imo, the source of their burnout. But if it is a passion of yours, do it earlier, the training demands good health and fair degree of energy.

Are you referring to jpm annual energy report? They cover a breadth of topics and is around that length.

Did anybody attend the hfp agm yesterday? Will they be posting up the agm video?

tpl

Ffh

An aside to this topic of FFH still being cheap despite the run up in pricing and the question of what to do at this point. I think the concept of economic elasticity might be helpful: ie: - Thinking on the margins instead of absolutes - What is the return/risk on the next marginal dollar? - Anchoring bias on the prior absolute purchase price vs what the purchase price today means relative to its fundamentals My normalized EPS is ~ $110 USD or $140 CAD. Even if I'm wrong, and EPS is really 1/2 of this, at these current prices, the earning's yield is 7.8%. Compared to the S&P 500 historical return of 7-8%, my general feel of the risk of margin compression, top-line growth deceleration, persistent share count dilution, probability of reinvestment success, etc between these 2 options, FFH seems better positioned. The question for me is: "what is the rational thing to do with my future savings"? I posted before that I would probably continue to hold my position, but the more I think about it, perhaps the rational thing to do is buy more given the opportunity set I have in front of me.

This paper from Research Affiliates gives some historical base rates for inflation rate movements. The price of time by Ed Chancellor is an interesting historical summary of interest rates across long spans of time across ancient, medieval, and modern societies. 965-history-lessons-how-transitory-is-inflation.pdf

Agree with @Spekulatius and @Munger_Disciple. Speaking for myself, I'm definitely a below average investor and would have likely did better just investing in a few indices. Perhaps I am just stubborn and hold some eternal hope that self-improvement is possible, and that even an average Joe could achieve some degree of investment success over time. I think an investor needs to earn the right to concentration because concentration requires 2 important attributes: 1) correctness of your variant view AND 2) ability to change your mind with new information. If you can ingest large volumes of information at great velocity, have great analytic horsepower, and have the ability to change your priors with new information and act on your posterior probabilities quickly and decisively, concentration makes a lot of sense. The unfortunate thing is that most of us have difficult to do this. There is a particular danger confusing correlation with causation as it pertains to concentration and investment success. The risks of concentration also dependent on age and future earning potential. This is counter-balanced with the fact that often wisdom and tacit experience comes with time. Swing/Value trading even with a 5+ year time frame for the average Joe is really difficult. Getting all the following right is a herculean task: 1) valuation accuracy 2) correct read on the business fundamentals 3) the right gut feeling/judgment of the people involved and 4) timing of catalysts. Hence @dealraker idea of letting life happen with long holding periods of productive businesses +/- averaging down smaller quantities over time after familiarity in the name builds up, is much more achievable (As long as one is willing to roll up your sleeves to read and learn about the business). The beauty of this approach is the humility in admitting that you don't have to be perfectly correct on the above 4 factors. This limits the impact of any bad investment decision and relies on a bit of luck in finding that wealth-contributing compounder to do its thing reinvesting in itself over time. Will concentration occur in this type of portfolio? I don't have the data, but given the opportunity, my guess is that a portfolio will behave with power law dynamics, but in this latter case, the business earns its way to portfolio concentration. It makes intuitive sense that if I can't maximize any informational or analytic advantage, taking an extreme behavioral strategy (especially if my investment returns don't dictate my employment status) is the only advantage retail investors can capitalize on. The key I guess is that with a @dealraker approach, is narrowing your field of view to productive profitable businesses with quality long-duration assets. If you can get great capital allocators that is a bonus. Perhaps the only variation I could think of is taking the occasional swing at some very asymmetric bets especially if the risk of a zero is unlikely. So for me, a buy and hold strategy makes more sense to me than concentration. I'm a slower learner and reader and can't change my mind quickly. Having 1-5% position sizes makes sense. Following ~20-30 positions will allow me to do some semi-regular diligence with an element of benign neglect as long as I stick with more liquid, > mid cap + companies, have a good opinion of management, can grasp at least the rudimentary key drivers of the business fundamentals, as well as favor long-duration quality assets. I like @Viking approach of asking oneself of how large a % do I want to make this? How sure am I of this mispricing? How familiar am I with the nuances of this business? What is the certainty I have around the valuation ranges? Is there alot of uncontrollable/hard to predict elements that necessitate a more gradual approach (eg land development timing, emerging market sentiment changes, etc). I finished a night shift last night, so I apologize for the rambling.

if you are selling some FFH at low 800s CAD, I'll buy some from you BAM seems fully priced, not sure about redeploying it to BN as it is a decent position size for me already

ntdoy