oec2000

It is not unlike going into a restaurant and pondering whether to go with the Porterhouse or the Filet. I have opted for the Porterhouse. Hey, why settle for one when you can have the buffett - I'm having the Porterhouse, the Filet MIgnon and the lobster! ;) Crip, just out of curiousity, were the poll results right - in terms of relative performance from then till now?

I'll be there.

Hindsight being 20/20 (assuming the worst is over) I probably should have bought more! Now, greed is not a good thing. ;D But, I sure feel the same way you do! SJ, told you there were home runs lurking in these things! (HFC.PR.B is now a 3-bagger.)

I second your vote of thanks to Brian, Francis, Sam and Wayne and I'm sure everyone else who attended will agree that you should be added to the list. We are especially grateful that Brian, Francis and Sam took the time to talk to us after what must have been a very long day for them and that they stayed so late to answer our questions. I would also like to echo Prem's and your words of support to Jo Ann Butler - I haven't met her but just going by the truism that you can tell the character of a person by the company she keeps, she must be one terrific lady. This was my first FFH dinner and AGM and I not only enjoyed it but benefited thoroughly from it. I found it particularly interesting to meet so many people of diverse backgrounds and investment philosophies with only one thing in common, FFH, binding us together. Thanks again, Sanjeev, for putting everything together! :)

Crip, aren't these moves too short term to be meaningful? Besides, the pfds should trade purely as a function of interest rates whereas the common trade as a function of the mood of Mr Market. If you still want a reason, I would speculate that the ORH pfds are looking cheap relative to the bank pfds and are simply playing catch up. Guess I now make full member! :D

For those of you who were at the AGM, can we assume that both Abitibi and Canwest were largely written down in Q3 & Q4 or will their be further large write downs in Q1? Yes, they are largely written down. Were there any questions about how FFH is planning to bring better performance to their underwriting? Prem reiterated that they would continue to shrink business if markets remain soft. Although he did not mention it, I'm of the view that there is a trade off between underwriting and investment opportunity. When potential investment returns are poor, float is less valuable and the priority should be on reducing its cost; on the other hand, when investment returns are promising, you may not want to shrink the float too aggressively as long as you can keep the cost manageable. A 2-3% cost of float is not worth much when you are getting only 3% on treasuries; the same 2-3% cost becomes quite acceptable when you can invest in BRK-insured munis yielding a pretax equivalent of 8%. The reality is that they are price takers in this highly competitive and price sensitive business. Too sharp a cutback in business will hit expense ratios and therefore CRs too. Also, turning away business aggressively now might position them less favourably when the market eventually hardens.

Oec, A question was asked if Prem was happy with the debt to equity ratios and the capital stucture of the company. He answered by saying that they had 1.5 B in cash and equivalents at year end, and then spent 350 on NB. He then said they bought in 1 million shares of FFH last year. He went on to say that even though the stock was below book they were not going to jeopardize the capital position in any way. REad nother way - he is managing investor expectations downward in this regard. Myself and another board member surmised from this that buy backs, including ORH, were not a priority for now. Having a huge amount of capital was. Al, I did ask a question about optimal leverage/capital structure and I am not sure whether you were referring to this question. If it was, I must say I came away with a different take about buybacks. I actually thought he was very comfortable with their capital position right now; that they had lots of capacity to write more business if opportunities arose; that as their investments performed their underwriting capacity would increase accordingly. To my recollection, nothing explicitly stated about buybacks. My impression (and it is only an impression) is that buyback decision will be driven by attractiveness relative to other opportunities and buybacks are not off the table. Having said all this, I do not completely trust my recollection and interpretation of everything that was discussed (so much info to process from the dinner and the AGM) so would appreciate hearing from others who were there.

Al, I asked this question because I thought that life cos long term float was a perfect match for FFH's long term investing skills. Also, because lifeco float grows cumulatively (as life policies are long term) the float can grow very large. Consequently, lifecos tend to have much higher leverage (assets to equity) than P&C cos. The key difference between lifecos and P&C cos is that the insurance reserves (i.e. the float) for lifecos relate primarily to policies still in force while the loss reserves for P&C cos substantially relate to policies that have already expired (loss reserves remain on the books even for expired policies until claims are finally settled). Policies in force can be cancelled/surrendered but expired policies obviously cannot be cancelled - this is what differentiates the two industries in terms of exposure to runs. So, under certain circumstances, policyholders may be motivated to cancel their policies and ask for their money back thus causing a run on the insurer. Prem mentioned a ratings downgrade as one such circumstance - actually, this is not a good example because a ratings downgrade would similarly affect a P&C insurer (only slower) in that policyholders would likely not renew their policies. A better example would be a situation when interest rates rose sharply to levels that made the embedded returns implied in life policies unattractive as happened in the early 1980s. In such a situation, you could still have a run on lifecos completely independent of their financially soundness. Hope this helps. UhuruPeak, I don't think underwriting risk is the issue that concrns Prem. He made no mention of it.

- do not seem inclined to use capital to buy back shares in bulk or buy in ORH in this environment - wants to have alot of capital for any contingencies - buy backs will use up too much - this is after 400 m to bring in NB Prem also said that while he is not against buying non-insurance companies, a la Berkshire, his preference is buying more float-generating P&C (Not Life) Insurance companies. Al and Crip, I seem to have missed these comments. Wld appreciate if you could elaborate in what context (and in response to what questions) these comments were made. Can anyone else at the meeting add any colour to these comments please?

Mungerville, Partner, Basl, I can understand your eagerness to know more but I am still "recovering" from the trip. I have more to add and will try to post over the weekend - unless someone else beats me to it. For now, a few quick takes that I got: a) Insurance mkts remain soft at the primary level; reinsurers showing more price discipline. b) Mkt cap/GDP now close to long term average - but no reason why it cannot overshoot on the downside as shown in the long term chart. c) Brian Bradstreet still bearish (but he is THE bear at HWIC; of course, he also got the CDS call right); Prem and Francis (I think Sam too) take the view that prices in Q4 were sufficiently attractive that risk was worth taking. Prem emphasised that they have been early (in the past with CDS and short equity positions) and could be early this time but that they will do well 5-10 years out. Francis still sees more value in bonds than in equities. Prem said that about 80-85% (I might be a bit off with this %age - could someone confirm or correct this?) of equities are in high quality companies (JNJ, KFT, WFC, DELL etc). d) Brian said that the thing that kept him up at night was worrying what happens when helicopter Ben stops flooding the mkts with liquidity (and what will make him do this). Would this be when the economy really collapses? e) Inflation and USD will likely be problems later on but not yet. Improvement in US current account deficit will provide support to USD for time being. Time will likely come when they hedge against USD weakness but not now. f) Biggest headwind for US economy is that 80% of the economy (the private sector) is deleveraging vs the 20% (govt) that is leveraging to prevent a total collapse. Who is going to win this battle? That's it from me for now.

My take on the Wells question: I'm pretty sure Prem said that they averaged all the way down to $14 - meaning that $14 was the lowest price paid, not their average cost. They stopped buying after that because they were up against prudential exposure limits per investment.

Jack, just wanted to say thanks for your support. Did not acknowledge it earlier because I felt it might be misconstrued as us ganging up. In deference to Sanjeev, I will stop commenting on this matter.

Time to let your cooler heads prevail on the subject. Next topic please! Cheers! Sanjeev, guess I'm not getting a job at the UN now! ;D If it's OK with you , I would like to make a post to clarify matters, not to pour more oil on the fire but because I think I owe Ericopoly an explanation as he seems pretty upset. First of all, I would like to say to Ericopoly that you have interesting, innovative and intelligent ideas and I think you are one of the best posters on this board. But because you are at times pushing the envelope, the ideas sometimes are a little wobbly - from my point of view, anyway. I enjoy vigorous debates and maybe there is a prblem with my writing style but I have not had any problems with anyone else on this board apart from you - I'm just making an observation, not drawing any conclusions here. I think/notice that you do misread the intention or tone of some posts because you read them quickly, get an emotional reaction, and don't do second reading to reassess whether you had misread the post originally. The way you misconstrued Jack's post is a case in point. Somebody always gets hostile. Now, what are you suggesting? Man... insinuation that I may be artificially strengthening my assertion. Can a conversation be had without so much hostility? I was not trying to be hostile, just asking you to be fair. It's tough to have a debate when someone asks you to adopt a standard that they are not prepared to live up to. In case you forget, you were the one who first insinuated that, by bringing in the tax issue, I was "artificially strengthening my assertion (your words, not mine)." In my view, tax is a very legitimate (as opposed to artificial) issue for most of us. If you put yourself in my position, would you not consider your original remarks hostile? Can I handle two issues at a time? I think I've already suggested that you are hostile. Now, if I remember correctly, you are the one with the Investing 101 remarks, am I right? I am not surprised that you took offence to my following remark: If you cannot handle two issues at a time, then you can ignore my tax comment - my second point does not rely on it. But, I ask you to consider whether my remark is any more hostile than your original remark to which I was responding: the conversation can me moved into that sandbox if it makes you more comfortable (if you cannot have a theoretical discussion on the logic of "hold" without the distraction of taxes). Again, all I ask if for you to be fair. OEC2000 is off discussing short selling for all I can tell, nowhere in the intellectual vicinity of my post. Then, he starts trying to chew it apart and is simultaneously wanting me to agree with him on some short selling thesis of his that I'm unconcerned about except that he is really pushing it on me hard, so I reply that I don't want to invest without the tailwind of business earnings backing me up if my anticipated speculative gains never show up. I'm the one who ought to feel roughed up -- I never once replied to criticise anything he said unless first spoken too. Why he or you think my post about buy/hold had anything at all to do with OEC2000 is leaving me scratching me head. As Jack has already pointed out, my remarks were aimed directly at your thesis of hold=buy; my comment on short-selling was just a logical add-on, not to get you to agree with any short-selling thesis of mine (I don't have any), but to show you that your thesis, if carried on to its logical conclusion, would require you to also accept short-selling - in other words, if hold=buy, then sell=short purely from the theoretical logic exercise that you were espousing. However, I feel that your last comment on feeling roughed up perhaps says it all - that it is about criticism. Perhaps, it is the criticism that you subconsciously don't like; it being aggravated by my writing style perhaps. To me, criticism is what this board is all about. I learn lots more from people who criticise me than from those who agree with me. This is why I frequent this board - to learn from others. Equally, I find that I contribute most to this board when I challenge other people's ideas. When I challenge, I do it not to win an argument at all costs; certainly not to put anyone down (and if I have done so, it is not intentional and I apologise to to anyone I may have offended in the past). As I implied in my response to Tooskinneejs recently, I will give as good as I get and as long as both sides can engage in a true spirit of give and take, there is no need to take offence. Ericopoly, you may not realise it but you can be pretty caustic in your remarks (please reread your posts on FFH underwriting recently if you want to know what I mean - you even excused yourself by saying you were in a bad mood because of a cold (?)). This is fine with me - as long as you can accept that it cuts both ways. Give and take, as I said. We will do well to heed Voltaire's advice: I do not agree with what you have to say but I will defend to the death your right to say it." That should be the spirit upon which this board should be based. Hey Sanj, am I back in the UN or am I now an ex-member of this board? ;) My apologies to everyone who read this entire post and as disappointed to find out that there was absolutely nothing worthwhile about investing in it!

did you not say that it you are unwilling to buy, you should also be unwilling to sell? Of course, I meant, 'if you are unwilling to buy, you should also be unwilling to hold?"

I try to keep things simple in order to focus in on the basic idea, not to artificially strengthen my assertion. Then, please practice what you preach. The only reason I repeated the tax assertion was to respond to your remark that "there are also places in the world where there are no capital gains tax." (You'll get my meaning if you see what I had pasted prior to making the point about most of us living where tax matters.) In any case, my argument does not rely on the tax issue alone. If you cannot handle two issues at a time, then you can ignore my tax comment - my second point does not rely on it. It is just my preference to discuss issues in a real world setting - theoretical discussions can get distorted completely out of whack with reality. To paraphrase a really smart guy, we should keep things as simple as possible, but no simpler thnn that. Your tax situation is as irrelevant as mine (which happens to be the polar opposite of yours - hardly anything in tax-deferred accounts) unless the aim is to artifically strengthen your assertion that tax doesn't matter. I was not prepared to do -- and that is to overweight a position. This is a valid argument and I accept it. However, I also read your explanation to mean that if you decide to buy something, you will buy the full weighting immediately (assuming there is enough volume) - if it's a buy, then you should keep on buying till you are full. In this case, can you please explain why you were happy to hold your, presumably, full FFH position at $300, choose not to add at $250 but then decide to add below $220? You also say that you were not prepared to buy FFH calls at $250 on the way down and that's why you are not prepared to hold the extra calls on the way up. But, by your own original argument, did you not say that it you are unwilling to buy, you should also be unwilling to sell? That being the case, you should logically sell out completely your FFH position at $250. In fact, you were also unwilling to buy at $230 - so why did you not sell out at $230? The screaming buy is the price that offers both the highest attractive investment returns and the highest speculative returns (at the same time!!), the "hold" offers less of both (so the motivation to sell it should be the same as the reason not to want to buy it -- it no longer "does it" for the greedy side of me). I think this is what Jack meant by non-sequitur. You don't directly address my question as to whether there is a precise point ($350.37!) at which FFH changes from a buy to a sell for you. If there is, I would love to learn how you arrive at it. Shorting uses up your capital when you could instead put that capital to work buying the next long position with potential for both investment returns and speculative returns. Don't forget that short is speculative returns only -- not nearly on par with long-only potential. Why is short speculative return only if your short/sell decision is based on the same price-value criteria as your longs? Both long and short positions use up capital. If, as you believe, the sell decision is as easy as the buy decision, shouldn't you be indifferent as to how you deploy your capital as long as you make money. If anything, having a mix of shorts and longs should reduce your risk without reducing your returns. Let me explain by giving a crude example why I believe buy, hold and sell decisions can and need to be distinguished. To me, something is a buy when it has a big margin of safety - i.e. estimated discount to IV - and the perceived risk/reward trade-off is favourable (better than 1:1). This could mean a 30-50% discount to IV. It becomes a hold when it is closer to estimated IV (and because it is estimated, it cannot, for me, be an exact point like $350.37). There is insufficient MOS for me to buy and there is also inadequate MOS to sell. In this case, price would be in the range of, say, 50-300% of IV. A sell is when the price is so far above IV that I have a comfortable MOS to sell and switch into a better alternative (which could include cash). Remember, the buy and holders are not "buy and hold no matter what." They are "buy and hold until there is a very very good reason to sell."

Thanks Kiltacular, SJ, and Eric for your feedback. You pretty much confirmed what I though made sense - good to have some reinforcement though. (I hope this time the consensus is not wrong as it so often is! ;)) Eric, I'm holding on to my RBS but have switched from the Ps to the Ls, following my prescription of buying the lowest to par issue. SJ, I sold some of my HBC.PR at 13.2% yld to switch to WFC.L at 15.5% yield and ORH-A at just under 12%.

I agree with much of what you said in your last post and I apologize for the tone of mine (not intended). Tooskinneejs, No offence taken and no apologies needed. I've long realised that the curse of successful investors is that they are opinionated - you need strong convictions to go against the herd. I only take offence with people who feel free to criticse others but get all upset when they are at the receiving end. I enjoyed the debate and, as I suspected, our views are not that far apart and that was the point of my original post. (I couldn't get what all the fuss was about.)

However, there exists the case I mention where there is no tax issue. There are also places in the world where there are no capital gains taxes (or extremely small taxes). Given where most of us live, it should be a fair assumption to assume taxes. It should also be a fair assumption that all of us frugal value guys would have at least some, if not most, of our investments outside tax-deferred accounts. If you cannot safely buy from cash at the current price due to uncertainty, then you also cannot hold due to uncertainty (they are logically the same thing). So I believe it is a non-issue after proving that holding is no different from buying. You are simply saying here that "All men are human beings." (All buys are holds. No one disputes this.) Your original assertion is stronger - it is that, to continue using my bad analogy, "All human beings are men." (All holds are buys.) The latter assertion is tenuous. Let me use your "logic" exercise to illustrate. If every hold decision is effectively a buy decision, then you should never have any cash in your portfolio except for the unique case when you are 100% in cash. If you have less than 100% in cash, you are holding some stocks. If you are holding these stocks, you must think they are buys. If they are buys, then you should use any cash that you have to keep on buying your holds. Say, you decide to hold on to FFH when the price went above $300. Since it was a hold, and therefore also a buy, at that price, you should have kept on buying as long as you had cash. You should not have had any idle funds to buy more FFH when it fell to $220. My point about the uncertainty of investing was to show that investment decisions are not black and white binary decisions. Even for someone as logical as you, I find it difficult to believe that you have a precise point, say $350.37, at which FFH morphs from a buy into a sell with no grey area in between. Surely you can see the validity of a view that holds that FFH is a screaming buy at $150, a strong buy at $200, a buy at $250 and a hold at $350. Once you accept this inherent uncertainty, you should be able to accept my broader point which is that buying or holding involves less uncertainty than selling because of asymmetry (the range of outcomes is not normally distributed but skewed) with the implication that sell decisions should not be evaluated the same way as buy decisions. As for your remark about active management, you misunderstand my position because you may have misread my posts. I am unequivocal about being able to successfully buy stuff below intrinsic value. It is the sell decision that I question and doubt because of upward biases working against the seller. This is why I pointed to the dearth of successful value short sellers around. If "value selling" were as easy as "value buying," we should expect to see a lot more value sellers since the space is clearly less crowded and potentially more profitable than the buy space. Ask yourself why you are a not a long-short investor. After all, using your logic, every sell should also be a short, right?

I don't think you understand the question I posed to JackRiver. My apologies! I did not read it or Jack's example properly. Having read both properly now, I have a question for you. Since no one really knows what his earnings are going to be, how would you value your offer of 60%? Now assuming that both of you somehow manage to agree on what his future earnings are going to be, then my original answer still makes sense, doesn't it? My Geico/See's/WPO question to you is based on the same premise as yours. My point is that after one year, the present value of the future cash flows would not have gone up by 50%. Let's say it's up 20%. So, someone comes along and offers you 50% more than you paid the year before. Do you accept the offer? Alternatively, consider this. Say, I bought $1m worth of WFC preferreds at a 20% yield because I want to have $200K of income per year forever. Tomorrow, the present value of the future dividends is still the same to me but you come along and offer me $1.2m. Whether or not I sell depends on whether with the $1.2m I can buy something else to give me an annual cashflow of more than $200K a year without taking on more risk. If, as is likely, the reason you are offering to pay more for the same cashflows is because the value of investments have gone up in general, then it is unlikely I will be able to find an alternative. What you seem to be suggesting is that I should sell and hope to buy back the pfds when prices settle back to $1m. My problem with this is that I am giving up the bird in the hand (the $200K p.a. income which is what I want) for two potential birds in the bush (the $240K income I would get if yields go back to 20%).

You should work for the U.N.! Thanks, Sanjeev. However, given my view of politicians and the UN, I have to take this as an insult. :D Holding is buying, and therefore holding at any price is buying at any price. Your exercise in logic works only because it ignores the certainty of taxes and the uncertainty of investing. Firstly, taxation does distort the decision, so holding does not exact = buying. It could = buying significantly cheaper. Secondly, the risk of error in investing is high. Your estimate of IV could be wrong. This risk of error is asymmetric because of the growth bias of IV of a good business (as time elapses, a rising IV increases the risk that your IV estimate is too low). This is compounded by the fact that the consequence of error is also asymmetric - even assuming your sell decision is fundamentally correct (in the sense that your estimate of value is accurate), your upside will rarely be more than 50% (i.e the stock drops and you buy back 50% cheaper) but your opportunity loss could be in the hundreds of %. (There is also an upward bias in markets.) Yet another complication is that a hold decision only requires that decision to be right; a sell decision requires you to be right when selling, and then again when buying back. (You may be right in selling at, say, 100% above IV with the intention of buying back below IV. What if the price never drops to your buy level?) Taking all these into consideration, a sell decision should require a much larger margin of safety; a hold decision should have a much lower hurdle - it's not that the buy and hold guys completely ignore price and value, it's that they realise the greater risk of a selling decision being wrong. Having said all this, I don't think the buy and hold guys believe in a zero portfolio turnover philosophy - presumably they would still switch out of something more expensive into something more attractive provided the margin of safety in the decision is high. Isn't this what Buffett did when he sold JNJ to buy some of the high yield bonds and preferreds? As a practical matter, am I correct to assume that you think that buy and trade will produce superior returns to buy and hold? If true, I'm curious to know how you arrive at this conclusion. Your response doesn't answer the question. So I'll pose it once again, this time more directly: Why does "holding no matter what" make more sense than "making sell decisions based on the difference between price and value?" In the first place, I don't think anyone is actually advocating "hold no matter what" so I don't get why you are using this as the alternative. (It's more "hold until there is a very very good reason to sell.") Secondly, I thought I answered the question when I explained that the risks of error are not symmetrical. Anyway, my response to ericopoly above should clarify why I think sell decisions are much tougher and should therefore be approached differently. Funny that you refer to a decision other than "hold no matter what" as "trading." You are putting words in my mouth. I called one strategy buy and hold and the other buy and trade simply to differentiate the two. Sure, I could have called the 2nd strategy "buy and sell and buy and sell" but it is a bit hard on the fingers and the keyboard. I think it was obvious from the context that I did not use "trade" in a pejorative sense to imply that the "buy and sell and buy and sell" guys are traders and not investors. Maybe you forget that I put myself in this camp also. My points, in case you missed them, are that we should not jump too quickly to the conclusion that buy and trade will produce better returns just because recent experience shows that it has; that the fact better investors than ourselves eschew this strategy should give us pause to reconsider our views; and that if we choose to be buy and traders, we should recognise that we are taking on the reinvestment risk which could negatively impact our returns. More importantly, the overriding point I was trying to make was that instead of taking such an antagonistic approach, the two camps should try and empathise with each other's views. We do come from the same value school, after all, and the only difference seemed to me to be that Jack's camp was happy to accept higher volatility and Sanjeev's camp wanted to try and dampen volatility. Instead of each camp claiming "I'm right, you're wrong. Show me your returns and I'll prove that you are wrong," (which is the direction the discussion seemed to be headed), I was trying to get both sides to see the validity of the other's point of view.

After the huge run in pfds, just wanted to get some of your thoughts. I'm feeling a little tempted to lock in some gains but feel rationally that that might not be the right thing to do since yields are still quite attractive. My head says to stick with the original plan - i.e. hold the pfds through to recovery of the financial sector and collect the fat yields in the meantime. My heart wants to gradually scale out of some positions or switch to more attractive alternatives. Advice, anyone?

Without knowing their rationale for buying the likes of ABH, CGS, etc, it may be unfair for us to second guess their decisions. One thing we know for sure is that HWIC are not dumb investors and they must have had their reasons. One possibility I've considered is that they felt that they wanted to balance out their very bearish portfolio positioning last year with some stocks that would have done very well if the economy had turned out to be less depressed than they had predicted - a form of insurance, if you like. Pure speculation on my part, though.

Let's say you, JackRiver, own this right to 50% of the young man's earnings per year for life and I come to you and offer to buy it from you for 60% of the young man's earnings per year for life. Would you sell it to me? Tooskinneejs, I take it that if you had bought Geico or See's or WPO at the same price as WEB, you would have happily sold a year later for 50% more? Do you think that would have been a good decision? To answer your question for Jack, whether I sell would depend on what alternatives I had. To the extent that market values tend to move in tandem, chances are I would not be able to find a suitable alternative. Even if I could find an alternative at a cheaper price, I would have to ask myself why you did not buy that cheaper alternative. Since I would already know young man 1 better, I would need a bigger margin of safety for young man 2 which makes it even more difficult to find an alternative.

Count me in too! Always happy to meet kindred spirits.

Let me try to bridge the gap between the two camps on this issue. I'll refer to the camps as Jack's and Sanjeev's (Jack, just fyi, around here, it sounds a bit strange to address Sanjeev as "Parsad.") Firstly, the gap is not all that wide since both camps come from the same Graham-Buffett value school. Secondly, let us not forget that Buffett, while still crediting Graham for shaping much of his investing philosophy, has broken loose from strict Grahamian principles. This is what seems to separate Sanjeev's camp from Jack's camp; the former leaning towards the "Graham and earlier-Buffett (pre-Fisher)" style; and the latter more firmly in the "later-Buffett post-Fisher" style. Under the circumstances, I would have thought that both camps would be able to empathise with each other's views. What Jack is proposing is perfectly reasonable. If you find an investment that you believe can indefinitely meet your return objectives, then you should not sell it even if from time to time Mr Market exuberrantly overvalues it. The logic is clear. At the point of entry, you must have worked out that the investment will, with an adequate margin of safety, provide you with your desired return. If that is the case, there is no need to try and juice up your returns by trading in and out of the stock. In fact, you shouldn't because in doing so, you expose yourself to reinvestment risk. (Sanjeev, your FFH example does not prove anything - you are giving an example that you know worked out with the benefit of hindsight. Many, if not all, of us have experienced the anguish of selling out of a position with the intention of getting back in cheaper only to miss out on a multibagger. I would imagine that there are many BRK or MSFT stories like this. Personal e.g.: I sold Singapore Exchange (SGX) at $4 for a quick double because it went to almost 40x earnings; it kept on going up to $16. Today, even after this bear of a market, the price is still above $4.) To use a "business-style" investing example, say, you decided to invest in a factory because of its projected 20% IRR over 15 years. If after one year, it is performing in line with expectations and someone offers to buy it off you at 2x your original cost, do you sell it? If you do, you expose yourself to reinvestment risk - you might not find something with an equally good return or worse still you might make a bad decision on your next investment. Bear in mind what Buffett has said about how difficult it is to find truly outstanding investment opportunities and you will understand his, and Jack's, reluctance to trade out of such investments for a relatively small and uncertain short term profit. Such a strategy might maximise your gains but it is definitely not optimal to achieving your investment objectives. Sanjeev, of course, introduces the very practical matter of human psychology and emotion, especially in the context of managing OPM. While we can agree on the theoretical wisdom of buy and hold Buffett-style, the reality is that the theory has to survive real world implementation. In the real world, 99+% of investors do not have Buffett's temperament. Add the fact that we don't have the same investment abilities as him (which helps him reduce the volatility of his returns) and we are left with a situation where we may have to opt for the less than optimal buy and trade strategy that Sanjeev advocates. I do the same because I do not like extreme volatility but I do it accepting that I probably will end up with sub-optimal returns. However, I am happy to accept lower returns as a trade-off for the lower volatility. I can understand this part of what Sanjeev is saying in respect of the funds he is managing. What isn't clear is whether Sanjeev's camp is suggesting that buy and trade can actually provide better returns in the long run. To this, I would say we should look to the example of the succesful investors we admire (Watsa, McElvaine, Chou, Cundill, etc) - the evidence is overwhelmingly in favour of buy and hold, imo. One last point. Someone mentioned that since we make buy decisions based on the difference between price and value, we should logically make sell decisions on the same basis. If this strategy were workable in practice, why are there so few successful "value short sellers" and why do so few of the super value investors use long-short strategies? It is because a) the markets can stay irrational for longer than we can stay solvent, b) upside and downside risks are not symmetrical, and c) good businesses have strong growth bias. If we buy a stock and the price goes against us, the improving fundamentals will eventualy bail us out; if you sell out of a stock and the price keeps on going higher, the fundamentals work against you. In summary, I think buy and hold makes sense but buy and trade is a necessary evil (for most people); we also need to consider the evidence more carefully before concluding that buy and trade will provide better returns in the long run. (Buy and hold seems bad only in the light of very recent experience. Can we conclude purely on this basis that buy and hold is dead? How is this different from those who conclude that Buffett (or McElvaine or Chou) is history? Why not, "Equities are dead"?)