oec2000

They didn't have enough capital to bring in ORH earlier. Meanwhile, ORH was able to buyback quite a bit of shares at much lower prices. The ORH takeout only made sense when FFH price was high enough for them to do a placement - even then, they had to sell the shares cheap.

Boy, am I glad I don't work for you guys! ;) Management has virtually doubled BVPS in the two most turbulent years in US financial history since the Great Depression. Anybody could have done that, right? Yeah, we need to take away Prem's bonus. What? Prem doesn't pay himself a bonus....oops, sorry. :D Just kidding, OK?

Given that Greenspan was one of the key people in control, and a strong proponent of deregulation and free markets, Greenspan surely fits the description of the idiots he's referring too (although the biggest arrow seems to be pointed at the Bush administration). That's why I don't get the "hero" bit. I agree there's lots of blame to go around but Greenspan a hero!! ???

He may not practise the American brand of democracy but why do you say that he does not believe in democratic values? Ever since its inception, Singapore has always had democratically elected governments - and these are proper elections untainted by fraud. If you watch the earlier interviews or read his writings/speeches, you will understand why he has gone for his own brand of democracy. His comparison of China with Russia in how they approached reform is instructive - Russia took a more "democratic" route but look where it has got them. Would China be the economic powerhouse we see today if it had taken the Russian path? Would the people be better off? But it would be wrong to draw the conclusion that he advocates that China (and the Chinese leaders do really listen to him) stays forever on this dictatorial platform. All he is saying is that China will have to do it at its own pace, based on what's best for the country and he predicts that personal freedoms will come eventually when the Chinese population becomes increasingly urbanized. This ties in to the advice he gives to America that they should be more accepting of others and their unique ways. Although he does not put it so bluntly, his advice is for Americans to lighten up on their "Father knows best" style of dealing with the rest of the world. (Quite ironic considering that Lee himself practices this type of "Father knows best" leadership in S'pore!) This is especially so given the tendency of Americans to dish out advice without a deep enough understanding of world history - hence his comment about the Chinese response to US advice ("Right, you have a 200 year history and you want to tell a nation with a 5,000 year history what to do? Thanks, but no thanks.") To illustrate this point, think back to the time of the Asian currency crisis when hedge funds from the West bankrupted a few countries in Asia and put a few more on the ropes. US officials were very liberal with their advice and admonitions for those governments not to bail out their financial institutions or to engage in cronyism - "you have to bear the pain, take the IMF medicine and put your house in financial order by not running up deficits." Guess what? Fast forward 12 years, the US experiences its own financial crisis and what does it do? LKY's point is that the US must learn that it doesn't have a lock on wisdom and all the right answers. Your style of democracy may work for you but don't assume that it will work elsewhere without considering local circumstances and history. That's why the "baby democracies" of Iraq and Afghanistan which the US mid-wifed continue to struggle. LKY is smart yet he continues to seek out the advice and opinion of others. Singapore's success is in large part a result of his strategy of attracting the best talent (okay, nepotism is OK also, occasionally ;D). This is part of his genius. Txlaw expresses some concern for his Realpolitik bent. However, in all the time that I have followed politics, I can't think of anyone who achieved success as a leader who did not have this bent - I think the others have simply managed to hide it better.

I thought he was rather kind to Greenspan. Surely it is a stretch to call him a hero! And, I thought Greenspan tried for many years to defend his action before admitting his error. CM's comment about Wall Street's locker room culture is much more to the mark. It is this type of mentality that spurs people to drive dangerously without consideration for the safety of others. Pure juvenile behaviour.

Lee's 2000 & 2004 interviews on Charlie Rose are also worth watching. Interesting insights on terrorism and how the world perceives America and Americans. Even at 86, he continues to display an impressive breadth of knowledge of economics and world affairs. He has slowed down with age and is no longer as eloquent as he used to be but his candour is truly refreshing, for those who are sick of the politicspeak we are so exposed to in the West. Imo, LKY (as he is fondly called by Singaporeans) is to politics what Warren Buffett is to investing. He is a long term thinker, a visionary who sees things than most others miss, and one who will go against popular opinion to do what he thinks is right. Like Buffett, he has lived in the same house for decades, his own home that he continued to live in when he was Prime Minister, if I am not mistaken. Under Lee's stewardship, for a country without any natural resources, Singapore's economic development is almost as outstanding as Berkshire's as a company. Among politicians, his integrity is without peer. There is an amusing story about the time when he raised salaries of cabinet ministers in Singapore to prevent corruption and to attract the best and the brightest into public service. (The current PM gets about US$3m a year). Amid strong criticism, he countered that although he was by far the highest paid leader in South East Asia, he was also by far the poorest (alluding to the corruption in Phillipines, Indonesia, Malaysia and Thailand.) His 2-volume autobiography: The Singapore Story, which is also a biography of Singapore, is recommended reading for anyone who wants to know the man and that part of the world better. Btw, I am not Singaporean. ;) And, like Txlaw, I disagree with some of LKY's views but that doesn't reduce my admiration for his achievements and intellect. Singapore is an inconsequential country but Lee's views carry weight among world leaders.

Hi Sanjeev, Thanks for the clarifications. Sounds good! Btw, did you ever get round to arranging a gathering for Board members in the Vancouver area. I remember it was discussed but don't know whether I missed it. Just thought it would be a good idea to do one if it hasn't already been done. oec

Even if we accept 0.6x book as a possibility (which I think we should), we should at the same time factor in the probability of it happening. Someone who worried about the possibility of 0.6x book in non-probabilistic terms would have reached the same conclusion all through 2007,8 & 9 and missed the opportunity of taking a full position in FFH. If you believe that FFH can grow book by 15% p.a. over the long run, you are fighting gravity by waiting for the 0.6x book event. If you think it is a high probability event, you would be prudent to wait. But, if you think it is a low probability event, waiting could cause you to lose out. E.g. If the 0.6x event only happens 3 years out when book had compounded to 1.52x of current book, the 0.6x event would bring you back to only 0.9x current book.

Sanjeev, thanks for the heads up. I look forward to being there again. I have some suggestions for the dinner for your consideration. The venue. Joe Badali's is conveniently located but the room was poorly insulated from outside noise making it difficult to hear. (As unassuming as they are good, the HWIC folk are very low-key people who understand that the power of one's ideas is unrelated to how loudly you expound them - something the talking heads on CNBC need to learn.) Maybe arranging a mike will solve the problem. Or someone else can think of an alternative venue. Voluntary donations for attending dinner. If my memory serves me well, you had previoulsy mentioned something about Joanne Butler's favourite charity. Since many of us have benefited greatly (both financially and knowledge-wise) from FFH management, I thought it would be nice for us to give something back in return for the courtesy that FFH management so selflessly extends to us every year. Timing. It occurred to me that there are some advantages to having the dinner after the AGM rather than before it. Firstly, it would enable to us to ask follow up questions to points raised at the AGM itself. Secondly, I'm just thinking that FFH mgmt might be busy the day before the AGM and may find it difficult to attend or stay long at the dinner. (Brian, Francis and Sam did stay till very late this year and I felt bad especially after hearing how early they normally start their day. Cheers, oec

Say, Buffett retires from BRK and devotes his time to teaching a finance course. He charges $50K. Any problem with paying him the $50K? If Buffett wants to charge $50K for lunch, some might think him greedy and decide they are not willing to pay him. But, if I were running a $100m fund and I felt that I owed my investors a duty to do the best I could for them, would I be wrong in paying for the $50K lunch so that I could become a better investor?

Scorpion makes a valid point. Sanjeev, you give the impression that these are mutually exclusive choices, which they are not. There's nothing to stop one from buying the books, attending the AGMs, lurking around this board AND also attending the VIC. The decision should be an independent one - based on a "price is what you pay, value is what you get" criterion. Value, after all, is in the eyes of the beholder. Not many people here would agree but some people clearly think lunch with Warren Buffett is well worth a million or two. Even Mohnish thought it was worth at least $600K. It seems to me that $2,000 is not a lot to pay if one can learn something useful from the VIC. For anyone with a decent sized portfolio (and I'm not even talking mega millions), one good idea would easily cover the $2,000. To put things in perspective, my BRK AGM trip cost me $1,500. It was a great experience BUT.........I did not get to ask WB any questions, I didn't hear anything that I could not have learned from this board or from the CNBC coverage of the event. (I did get a picture with the Man, which is worth a million $ to me, but that's another story!) So, let's hear from those who have been to past VICs - tell us whether the benefits outweigh the cost. (Ragnar suggests that while it was enjoyable he did not get that much benefit from it.) (I haven't been to any but Bill Ackman's presentation on mortgage insurers from the VIC website helped me understand the scale of the problem and certainly played a role in my avoiding the biggest landmines last year.)

Actually, I would be quite happy to sell some, for the right price - that's one reason why I am asking. In any case, how can CBOE know whether there are buyers or sellers unless they list the contracts? Perhaps, I should have asked my question better. Does anyone know how the options exchanges decide when and at what levels to list options contracts. To give a related example, the timing of when to list 2012 options - is there a set timing of when these are listed? Am I right in assuming that the exchanges make the decision based on how much trading activity they see and recent volumes on FFH options have been unusually low?

Does anyone know why the strike prices stop at 350 even though the stock is trading well above?

Oops! Coorection: FFH's pfds yield just under 6%.

Surely you can do better than this! How about investing in my soon to be launched Madoff Weizhen Tang Guaranteed Not Ponzi Fund?! ;D ;D ;D Seriously though, I think preferreds are still a good cash alternative (assuming this is cash for investment and not cash for a house or college expenses next year). Apart from the tax-advantaged treatment of dividends, they also offer a significant yield pick-up over cash - e.g ORH-A offers 8%, ELF pfds in Canada pay about 6.5%, FFH's recently issued pfds are 6.5%. (6.5% in Canada is equivalent to 9% pretax - a huge pickup over 0% cash!) While it is true that some of these could have some downside risk if the markets suffer a major correction, they should not fall as sharply and you can switch back into cheap stocks as hoped for. If markets continue to stay up, at least you get paid for waiting. In the best case scenario, the economy slows, stocks fall, but bond and pfd yields compress and you even make some gains on the pfds.

I'm not disputing that the effect is signifcant over long periods. The practical question is what is likely to be the average holding period for most of us - even for buy & hold investors, I suspect the average portfolio holding period is likely to be closer to 5-10 years (10-20% annual portfolio turnover) than 30 years (3.3% turnover). My point is that the compensating factor - that of higher returns that can be achieved through better "tax-free" investment decisions - could materially narrow the gap. (Of course, I'm making the assumption that our investment decisions would be better if we were not distracted by tax issues). So, it also depends on how much we can improve returns this way - a couple of % points makes up the difference. One more factor is the possible benefit of reduced volatility of returns as pointed out by Uccmal. The implication is that lower after-tax returns might to some extent be compensated by lower volatility. The example you gave of your FFH strategy is more relevant to the debate between buy & hold vs market timing and not to this discussion because, as you pointed out, its price has never risen to your estimate of its worth. For the purposes of this discussion, the question of whether to sell FFH would arise only if you felt that FFH had become overvalued and you could, for argument's sake, switch to a still undervalued ORH. Would you not do the switch, which makes sense from an purely investment point of view, simply because of the tax hit? As for Buffett's philosophy of "holding forever," my take on Buffett is that while he has his broad principles, he is not dogmatic and will do contrary stuff if it makes good sense (e.g. silver, the Br real, BYD). Besides, didn't he use to do a lot of short term merger arb stuff in the early days to enhance returns? Even if I sound like I'm on the side of ignoring taxes, I'm really still an agnostic and am conflicted. That's why I started this thread. I was hoping to hear of the experience of others and what they have learned from it.

On the contrary, you can have your cake and eat it too. Pay down your mortagage BUT arrange for a line of credit to replace the portion of your mortgage you repaid. The LOC gives continued access to liquidity and provided you use it strictly for investment purposes, the interest paid BECOMES tax deductible. To be prudent you should continue to pay the same mortgage instalment that you did before so that you are not increasing your overall debt.

Hi SJ, There are all sorts of possible reasons why pfds may suit their particular purposes better than common - e.g. overconcentration in common, funds they need to use within the next few years, fixed income portion of portfolio, etc. So, I think you are thinking too hard. :D You need to take a vacation. JK. oec

Viking, You can't use FFH and BRK as role models without allowing for their circumstances. Both FFH and BRK have large USD liabilities - these investments are properly matched. You have to ask yourself whether you have any USD liabilities. Even though I live in Canada, I reckon that some of my expenses are USD denominated - e.g. travel expenses in the US, many products we consume are priced in USD (books, electronics, gas, etc) so I believe in having some USD exposure under normal circumstances. This doesn't mean that there may not be times, like now, when I take a consciously negative position against the USD. So, my exposure in JNJ is through options (not leveraged) but solely to minimise USD risk.

50% is certainly high enough to make taxes matter! :'( I live in Canada where capital gains (no distinction between short and long term) are taxed at about 22% max. (I'm guessing the long term gains rate in the US is similar.) At these lower rates, I feel the decision is tougher. I've done some calculations to illustrate the tradeoffs (I've assumed 18% pretax returns and a 22% tax rate): Period IRR IRR (in Yrs) Sell Yly Hold Difference 5 14.0% 14.9% 0.9% 10 14.0% 15.7% 1.7% 15 14.0% 16.2% 2.2% 20 14.0% 16.6% 2.6% 25 14.0% 16.9% 2.8% 30 14.0% 17.0% 3.0% It can be seen that the buy and hold strategy results in a significant difference only over very long holding periods. For periods shorter than 10 years, the advantage is only about 1.5% or less. So, it boils down to a question of whether investment decisions made without the burden of tax considerations can more than offset this 1.5% difference. (Remember also that my example assumes quite punitively that we turn-over the entire portfolio every year in one case and have absolutely no turnover until the end of the period in the other case. But this is not quite foolproof because of the 60 day exposure, right? Anyway, unless someone else knows better, this option is not available to us poor folk in Canada.

Flying Arrow brought up an interesting point about the effect of taxes on investment returns in another thread. For those with investments outside tax-sheltered accounts, this is an important issue and it would be interesting to hear how you deal with it. (Because of differences in Cdn and US taxation of capital gains - in Canada, generally speaking, all cap gains are taxed at the same rate, i.e. 50% of your marginal rate - the strategies may be different. I gather that options are treated differently too.) As a starting point, I assume we all agree that, all things being equal, it is better to defer the realisation of gains to derive the benefit of interest free financing from CRA/IRS. The problem starts when your investment analysis tells you to switch out of a stock on which you have a substantial gain to buy something else. I'll give two examples that I am grappling with right now. a) A preferred bought at $3.60 has gone as high as $22, a level at which I think I should sell and switch into something else with more upside. b) FFH stock bought around $250. At $375, I'm thinking of selling the common to switch into FFH LEAPs (280 or 300 call) - the idea is to reduce my downside (max downside on common is $375, max downside on 300 call is abt 100 but main thing is that LEAPs will not fall less than $1 for every $1 decline in FFH price.) In the past, I have tended to make such decisions with an eye on the potential tax liability. Not sure whether there is selective perception on my part, but it seems that when I have allowed tax considerations to get in the way that I have sometimes made bad decisions.

My returns are pretax as, I presume, most of the other numbers posted here are. For this discussion, the aim of which is to learn from each other's styles and successes & mistakes, pretax numbers make sense. Trying to use after-tax numbers causes complications such as whether we should provide for taxes on unrealised gains the way corporations do. Nevertheless, you make a valid point about the frictional costs of taxation. It is something that I am struggling with this year - the eternal question of whether investment decisions should be influenced by tax considerations. This is an interesting enough subject on its own so I will start a new thread so as not to muddy this thread.

I have two accounts. Returns are in C$. Account A: 2008 +15%, 2009 +80% Account B: 2008 +35%, 2009 +80% 2008 - What I did right: Waiting for fat pitches; FFH (thanks to this board and HWIC), Cdn preferreds (high yields kept me patient to wait), silly returns (almost 100% compounded) on BNA.PR.B retraction arbitrage, SCP-T. What I did wrong: BCE arbitrage (this one hurt!), KFS-T, AIG, small exposure in some risky stocks (e.g. CGS-T (no thanks, HWIC!), OIL-T, PFE-T, QEC-T - bought these as insurance in case I was wrong about the market because I was seriously underweight equities). 2009 - What I did right: US bank and ORH preferreds in Feb/Mar; SCP-T; Citigroup preferred conversion arbitrage; BX LEAPs; Canadian split corp preferreds; FFH leaps (thank you again HWIC! and thank you Mr Market for keeping it cheap!). What I did wrong: Not going all in in March (cash level did not go below 30% I think), especially in US bank preferreds (which I had been pounding the table on) - a couple of them are up 500%!; not hedging USD exposure effectively. It was only in 2007 that I started to look at North American markets seriously so I had the disadvantage of not being very familiar with the companies. This is what caused some of my disasters in 2008 - buying before making thorough due diligence. What saved me was my style of not taking big positions until I have done more detailed work (and even then, I like to keep track of a few quarters of results as I scale into positions.) I have a risk averse style because I have gotten used to retirement (in my 8th year now) and never want to have to go back to work again. I manage risk by a) Not having more than 33% exposure in anything even if it is a "sure thing." b) Using options (they are not as risky as some posters think if used correctly). c) Assuming that my first entry into any position will not be a good one. Thus, I leave lots of dry powder to average down on a position. This way, I am assured that I will never be completely exposed at market tops. (As stocks move up sharply, I look for lower risk situations to switch to or substitute positions with LEAPs (e.g. with FFH now). d) Taking advantage of arbitrage positions whenever available. Unfortunately, the easy money has been made and it will be a harder slog from here unless Mr Market cooperates by giving us a significant correction. I will be happy if I can average 15% over the next five years.

Claire Barnes manages an Asia focused fund and should rightly be measured against an appropriate regional benchmark - she is not a global asset allocator. Actually, I knew her back in the 1980's when she was a young analyst - even then she came across as smart and independent minded. Another point to consider is the size of her fund in the early years - my comments below on Target Asia will explain. Frog might be referring to Target Asia which is based in Singapore: http://www.targetasset.com/Perf%20Latest%20Month.pdf TAFL is managed by Teng Ngiek Lian whom I know well. I'm a long time investor in the fund. Teng is one of the best fund managers in the Southeast Asian markets. He has spread his focus to North Asian (China, Taiwan, Korea) markets in recent years but I think Value Partners HK (http://www.valuepartners.com.hk/html/eng/about_us/history.html) are stronger in that region. TAFL started out very small in 1996 and did very well for the first 7-8 years managing to sidestep two major bear markets in Asia during that period thus outperforming the benchmarks by a wide margin. However, since around 2004, TAFL has only just about kept pace with the market - due, imo, to fund size as well as the negative influence of having a larger institutional client base now. For fair comparison of fund performance, I think we should look at risk adjusted returns vs the relevant benchmark. Risk adjusted returns help to compensate for leverage. Nevertheless, I agree that leveraged fund returns should be taken with a large helping of salt because you can never be sure when a blowup will hit.

SJ, you had me going for a while. Spent a few minutes looking into CASH-Q before I realised your joke! :D Just out of curiosity, have you been trimming your preferred positions? OEC