Xerxes

"Billionaire Warren Buffett’s Berkshire Hathaway disclosed on Friday that the investment conglomerate has slashed its stake in US lender Wells Fargo & Co to 3.3%. According to a SEC filing, Berkshire (BRK.A) now owns about 137.6 million shares in Wells Fargo, worth $3.4 billion, down from the 237.6 million shares it owned as of the end of the second quarter. The US lender’s shares were down almost 1% in Friday’s after-market session." i guess no surprise on the continued trimming. used to be a 378 million share position. https://finance.yahoo.com/news/buffett-berkshire-cuts-stake-wells-092522345.html

I think you will find this podcast interesting with Lawrence Cunningham about Berkshire and generally the genre of companies attracting what he defines as low-churn high quality investors. https://www.fool.com/podcasts/industry-focus/2020-08-26-wildcard-the-tesla-of-medical

I couldn’t find anything that supports that. Certainly not in Q2 https://www.google.ca/amp/s/seekingalpha.com/amp/article/4370846-tracking-prem-watsas-fairfax-financial-holdings-portfolio-q2-2020-update Which is good. Prem shouldn’t be watering his weeds at the expense of the his flowers. It is already a significant bet as is

My view is that the linked article is written by a poorly programmed AI. It randomly attached facts to make a business article. The AI is a far cry from the Skynet that was suppose to take over the world by now.

Would folks be surprised if out of the blue there is a note from Berkshire saying that they own 5% of Reliance Industries. Although it is hitting all time high, during the drawdown and prior to the technology cash infusion blitz, it was pretty low. If the Japanese venture is more like a outside-US theme (allbeit small), why wouldn't he be interested in the major industrial player in India (with its technology optionality).

At least this Japanese experiment provides a much needed ammunition and material to the business podcasts that I listened to in these last waning days of august.

Sensex has largely snapped back from 27K lows in march to 38K, i am guessing fuelled by Reliance Industries*, but not yet surpassing its pre-pandemic highs. Fairfax India, however, has barely recovered in fact badly lagging the market, probably held down on the weight of its exposure on financial services. I am not too sure if Sensex is the right benchmark, perhaps there is another. i am guessing the financial services where FIH had invested has led the downturn for FIH through their mark to market accounting in Q1-Q2, but as financials their cyclical recovery is probably lagged as well. So the snapback hasn't really happened. That said, IIFL Securities seemed to have recovered better, i am guessing due to trading and issuance of fixed-income securities. CBS bank seem to have recovered very well. In fact it had the most mark to market decline in Q1 and the biggest bounce back. As for the rest that are mostly illiquid investments, I think FIH has more leeway on the magnitude of impairments (if required) and can argue for patience, which is fine. The underline portion is notable as it shows a continuous decline on some holdings even through Q2. One potential tailwind for the whole lot is the potential weakness in the US Dollar against the rest. *if only Jack Welch has built General Electric like Reliance Industries. --------------------------------------------- Q1 Highlights for first quarter of 2020 included the following: Net change in unrealized losses on investments of $274.3 million, principally from decreases in market prices of the company's investments in the public companies CSB Bank ($105.4 million), IIFL Finance ($77.1 million), Other Public Indian Investments ($37.3 million), IIFL Wealth ($22.4 million), Fairchem ($16.4 million), IIFL Securities ($11.8 million) and 5paisa ($7.6 million), and a decrease in the fair value of the company's private investment in Sanmar ($8.7 million), partially offset by an increase in the fair value of the company's private investment in NSE ($13.5 million). Full recovery of the performance fee of $47.1 million, which was accrued to the benefit of Fairfax Financial Holdings for the period from January 1, 2018 to December 31, 2019. The performance fee, if any, will only be finally determined by December 31, 2020 at the end of the three year measurement period. At March 31, 2020 common shareholders' equity was $2,178.9 million, or book value per share of $14.37, compared to $2,577.9 million, or book value per share of $16.89, at December 31, 2019, a decrease of 14.9%, primarily related to a net loss during the first quarter of 2020 and unrealized foreign currency translation losses as a result of the weakening of the Indian rupee relative to the U.S. dollar. Q2 Highlights for second quarter of 2020 included the following: Net change in unrealized gains on investments of $70.5 million, principally from increases in market prices of the company's investments in the public companies, including CSB Bank ($65.9 million), Fairchem ($37.1 million), IIFL Securities ($14.0 million), 5paisa ($10.5 million), IIFL Wealth ($5.2 million), and Other Public Indian Investments ($11.7 million) partially offset by a decrease in the fair value of the company's private investments in Sanmar ($56.8 million), NSE ($14.5 million), and NCML ($7.7 million). On June 26, 2020 the company extended its $550 million secured term loan facility with a syndicate of Canadian banks to June 28, 2021 with an option to extend for an additional year. At June 30, 2020 common shareholders' equity was $2,220.0 million, or book value per share of $14.75, compared to $2,577.9 million, or book value per share of $16.89, at December 31, 2019, a decrease of 12.7%, primarily related to a net loss during the first six months of 2020 and unrealized foreign currency translation losses as a result of the weakening of the Indian rupee relative to the U.S. dollar. ---------------------------------------------

https://www.bloomberg.com/news/videos/2020-07-21/leadership-live-with-david-rubenstein-michael-evans-alibaba-group-president-video Interview with Alibaba president (a canadian) https://www.bloomberg.com/news/videos/2020-07-10/airbnb-ceo-brian-chesky-on-bloomberg-studio-1-0-video Interview with Airbnb ceo

There is a really good interview with Airbnb boss on Bloomberg from I think a month ago. I ll try to find and post the link. On Asian names, I think Ant Financial would be interesting. As well as GRAB (not public yet but Uber owns a quarter) Personally I am not interested in Meiutan and It’s peer Pudadngo (spell) They grow fast, but I ll go any day with Baba and Tencent instead. For me, a potential FANG ought to be a money spinner with scale. Ant Financial is one. Grab is much smaller but it’s market is also smaller than China.

https://www.canadianunderwriter.ca/commercial-lines/why-the-hard-market-reminds-fairfax-ceo-of-2001-1004195626/ Steep price increases that have hit brokers’ commercial clients will not continue for the long term, but the current hard market is reminiscent of the period after Sept. 11, 2001, when two planes destroyed the World Trade Centre in New York, suggests Prem Watsa, chairman and CEO of Fairfax Financial Holdings Ltd. “The hard market is not going to last long,” Watsa said on a recent conference call discussing Fairfax’s financial results for the three months and six months ending June 30. “It reminds me of 2001. You had price increases in 2000. September 11 [2001] came into play and then prices really took off in 2002 and ‘03 and ’04. In that time period, we increased our premiums by 100% for the whole company.” Watsa was referencing the aftermath of the Sept. 11, 2001 suicide plane hijacking by Al Qaeda operatives that brought down New York City’s World Trade Center towers and damaged the Pentagon, causing tens of billions of insured losses and killing thousands, many of them trapped in the buildings as well as all occupants of all four airliners and hundreds of first responders. The catastrophic event caused commercial insurance markets to harden, resulting in steep price increases that are now seen in today’s contemporary commercial insurance market. Regarding today’s commercial insurance rates, “we are seeing price increases of 10% to 30%,” said Watsa, who founded Fairfax in 1985. Toronto-based Fairfax owns Northbridge Insurance as well as several global P&C carriers, including Brit PLC, Allied World and Odyssey Group. Fairfax reported July 30 it had net premiums written, across all of its insurance and reinsurance companies, of $3.56 billion in 2020 Q2, up 5.4% from $3.37 billion in 2019 Q2. All figures are in United States dollars. Net earnings in the latest quarter were $435 million. Fairfax’s Toronto-based Northbridge subsidiary reported net premiums written of US$403.2 million in the latest quarter, up 5.4% from US$382.6 million in 2019 Q2. Northbridge’s premiums were up 11.3% for the first six months of the year, from $639.8 million in 2019 to $712.2 million in 2020. For first six months, Northbridge made premiums of $712.2 million this year, up 11.3% from $639.8 million in 2019. In Canadian dollar terms, Northbridge’s net premiums written in 2020 Q2 increased by 8.9% over 2019 Q2 – and 13.9% from the first six months of 2019 to the first six months of 2020. This is primarily due to price increases, strong retention of renewal business, and growth in new business, partially offset by returned premium due to reduced exposure (mainly in auto) from the COVID-19 closures, Fairfax said in its management discussion and analysis of its Q2 financials. At Zug, Switzerland-based Allied World (which Fairfax acquired in 2017), net premiums written increased by 20.4% from $657 million in 2019 Q2 to $791 million in 2020 Q2. This is primarily due to improved pricing and growth across both commercial primary insurance and reinsurance. For Allied World’s primary insurance business, its premiums were up mainly in excess casualty and professional lines. Company-wide, Fairfax reported a combined ratio of 100.4% in Q2, compared to 96.8% in 2019 Q2. Northbridge had combined ratio of 94.3% in 2020 Q2, a 4.8-point improvement from 99.1% in 2019 Q2. Company-wide, Fairfax reported $17.5 billion in gross written premiums in 2019. The lion’s share of those premiums come from Odyssey Group, New Jersey-based Crum & Forster, Brit, Allied World and Northbridge. Fairfax also has extensive holdings outside insurance, such as the majority of Recipe Unlimited, whose restaurant brands include Harvey’s, Swiss Chalet, The Keg, Milestone’s, Montana’s, Kelsey’s and New York Fries, among others.

I think there is nothing wrong to shamelessly taking a page out of one the best investor out there when it comes to technology names and investigate those names further. And no I don't mean Cathy Woods from ARK; although I have great respect about her. More on that later. I speaking of Tesla' largest institutional shareholder. Nope, I dont mean Ron Baron either. Although he is cool too. I mean Baillie Gifford & Co. & James Anderson. Aside some of the main established FANG names that folks are familiar with, he has been a major investor in Tesla for a very long time and in a big way. Other names that he has invested in are Spotify and a dutch semiconductor name called ASML Holding N.V. I personally think Paypal has the scale & reach to become a FANG like powerhouse. On Kathy Woods, one has to giver her credit for taking a stand on Tesla with her $4000 share price some years ago. Most analyst wont stick their neck out like that. Now she can be completely wrong or completely right, but unlike the typical Wall Street sell-side analysts, she took an stand. The rest of Wall Street plays the usual catch up game. Saw an interview with Adam Jonas on CNBC where he was trying to raise his target price close to the market price, as he kept inserting shims into his sum of parts to lift it. I mean really !

I closed the deal of the century with an arbitrage trade. Browsing through my to-get list of books, came across this one "What it takes" and saw that it was trading on Amazon.ca for $21 CAD for hardcover and brand new. Clicked on buy. Got it last week. My arbitrage trade has now eliminated the pocket of inefficiency that existed in the market place. Now it is back at $30+ CAD level. Interestingly, although through Amazon, it came wrapped as an Indigo pacakge. In a true, Xerxian fashion, I proceeded than to use my tried and true LIFO methodology to manage my book backlog. So, I start reading it right away. I recommend, also the following. I read it last year. https://www.amazon.ca/King-Capital-Remarkable-Schwarzman-Blackstone/dp/0307886026/ref=msx_wsirn_v1_2/137-3773990-9794505?_encoding=UTF8&pd_rd_i=0307886026&pd_rd_r=99866a43-0f8d-4b49-a2a9-8dd5b7b9e171&pd_rd_w=Vbt1g&pd_rd_wg=e0mkW&pf_rd_p=4f813f9a-219c-4276-b961-dd64dc407a40&pf_rd_r=STFQZ0KJFZWVJEF65GQQ&psc=1&refRID=STFQZ0KJFZWVJEF65GQQ If you read the two books above about Blackstone alongside this one with Sam Zell, you get a nice triangular point of view on the trade they did right before 2008 crash. https://www.amazon.ca/Am-Being-Too-Subtle-Straight/dp/1591848237/ref=msx_wsirn_v1_1/137-3773990-9794505?_encoding=UTF8&pd_rd_i=1591848237&pd_rd_r=99866a43-0f8d-4b49-a2a9-8dd5b7b9e171&pd_rd_w=Vbt1g&pd_rd_wg=e0mkW&pf_rd_p=4f813f9a-219c-4276-b961-dd64dc407a40&pf_rd_r=STFQZ0KJFZWVJEF65GQQ&psc=1&refRID=STFQZ0KJFZWVJEF65GQQ

Many thanks dcollon, I just ordered the book. Liked the intermittently aspect of it.

Folks, would appreciate feedback on this book if someone has read it. I read a lot, but for some reason tend to buy at faster rate than I read. For this name specifically, I hit the "pause" as the book claims to be a collection of letters to shareholders from the usual suspect and those are publicly available anyways. I would appreciate if someone has purchased this book can comment on it. Is there more meat than a re-branded of publicly available goods https://www.amazon.ca/Dear-Shareholder-executive-letters-Buffett/dp/0857197916?pf_rd_r=AJ390FRHFMBD9QBTN955&pf_rd_p=224b3e01-1095-4e40-a5cf-d93c273ba078&pd_rd_r=1ca9fbdd-7d94-4fa8-b3b8-8ecb0d85775e&pd_rd_w=u1esM&pd_rd_wg=ZjL2B&ref_=pd_gw_ci_mcx_mr_hp_d The shareholder letters of corporate leaders are a rich source of business and investing wisdom. There is no more authoritative resource on subjects ranging from leadership and management to capital allocation and company culture. But with thousands of shareholder letters written every year, how can investors and students of the corporate world sift this vast swathe to unearth the best insights? Dear Shareholder is the solution! In this masterly new collection, Lawrence A. Cunningham, business expert and acclaimed editor of The Essays of Warren Buffett, presents the finest writers in the genre of the shareholder letter, and the most significant excerpts from their total output. Skillfully curated, edited and arranged, these letters showcase the ultimate in business and investment knowledge from an all-star team. Dear Shareholder holds letters by more than 20 different leaders from 16 companies. These leaders include Warren Buffett (Berkshire Hathaway), Tom Gayner (Markel), Kay Graham and Don Graham (The Washington Post and Graham Holdings), Roberto Goizueta (Coca-Cola), Virginia Rometty (IBM), and Prem Watsa (Fairfax). Topics covered in these letters include the long-term focus, corporate culture and commitment to values, capital allocation, buybacks, dividends, acquisitions, management, business strategy, and executive compensation. As we survey the corporate landscape in search of outstanding companies run by first-rate managers, shareholder letters are a valuable resource. The letters also contain a wealth of knowledge on the core topics of effective business management. Let Dear Shareholder be your guide.

Prem talked about Singleton few years ago hinting at that buyback narrative. I for one am glad that he had the steady hand and clear mind not to devour its own shares substantially in the past few years. Folks forget that the very steep discount of 0.7 is very recent. For years (before covid), investors here and on conference calls (I listen to all of them) have been begging him to buy back his shares. Imagine all the value that would have been send to the gutters had he bought back shares substantially at book value or 0.9 book value ... and then you had hardening of the insurance market and covid-19, and FFH had no dry powder left to take advantage and invest and its actual 'core' business. On a different thread, I use the example of Boeing and General Electric, both led by manager-operators. Both nearly crashed as they spent years doing buyback and hollowing out their balance sheet all in the name of shareholder supremacy. I yearn for long-term shareholder supremacy. .. not front-loaded shareholder supremacy. Prem might not be a good stock picker in the Age of FANGS, but thankfully equities are one component of the entire business. FFH may have lost 30% or so but has a good chance for a comeback. I rather be a FFH shareholder (any day) than a General Electric that seen its shares plunge from $35 to $7.

i searched, couldn't find anything except a reference in 2018 shareholder letter; but no valuation nothing. Another Canadian (Ryan Reynolds) is making dough though.

Bloomberg has two articles on this. The only thing they could mention as highlight is the half-billion investment on Barrick Gold. Marc Bristow is going to have field day. I admit That guy is pretty good, I have been following him since he joined Rangold with Barrick. Both him and Thornton are big fan of the 8 CEO book. Sadly I never invested in. Hopefully market will focus on what matters, which is BRK that is cutting down its collection of random financials and building up around one name. I think these recent moves of increasing concentration slowly and making the portfolio less of a jumble will pay dividend to BRK over the medium term l, hopefully with a re-rating.

Apologies, let me rephrase and add background. July 18, 2018 - BRK said that buyback will be based on intrinsic value going forward, scrapping 20% BV rule. Since then, BRK share price has mostly in between $195 and $215 save for the immediate period before Covid-19. Why is that back then, BRK has not bought back significantly, when it had pockets of opportunities around $200. And I am not referring to the Feb-March drawdowns this year. That we can explain by not fully understanding the liabilities etc. etc. So what changed on the upside (as a positive) since July 2018 that makes BRK today more attractive than BRK back in summer of 2018 and most of 2019. The price range has not changed meaningfully. Post-Q2 (in July), it is reported that: "Berkshire reported the equivalent of 1.59 million "A" shares outstanding as of July 30, a decline of about 8,500 shares from the 1.6 million shares outstanding on June 30. Assuming stock buybacks are behind the decline, Buffett and his team probably spent between $2.3 billion and $2.5 billion based on the trading range of Berkshire "A" shares in July." ref: https://markets.businessinsider.com/news/stocks/warren-buffett-berkshire-hathaway-7-billion-stock-buybacks-3-months-2020-8-1029490985# So what I am saying is that perhaps the one lever that affected Buffet in his calculus to ramp-up his buyback, something that he could have done also in 2018 and 2019 (again granted the price range is slightly better today), is the massive outperformance of Apple, which pushed intrinsic value (or sum of parts) further and further away from market value. Something akin to 'wealth effect'; he feels better spending on buybacks now that he has good margin of safety build by Apple. Granted all unrealized. Another point I think perhaps affected his calculus (just like any other investor) is that covid-19 provided a clear rebase-line for him (and others) to basket his assets in two camps: (1) performers (2) laggards impaired by covid-19. With that clarity and re-baseline, now clear in mind, he can now chart a new path for the conglomerate. For instance he clearly made up his mind that he is done with Wells Fargo and he like Bank of America. He is done with Airlines and quickly wrote off a third of PCP. We obviously don't know what he is thinking, but I believe although the total liabilities & secondary effects of Covid-19 remain unknown today, he probably has a much better sense of the overall picture, and where he wants to take the company, than the in the 2018-19 years before storm, when he was waiting for something to happen ...

Just a quick observation on the BRK buybacks, perhaps this is Buffet returning/sharing with us his windfall of his Apple trade, without him really selling it. In his mind, "I'll just ramp-up the buybacks as long as it is within my price range". Sadly, while the Apple trade has been great for BRK, the company, BRK shareholders would probably be rewarded in a greater disparity between market value and sum of the parts. How to fix that => ramp-up buybacks.

I own Tencent for a few years now. My view is that although the Tik-Tok move was fair game, after all the People's Republic doesn't allow Facebook in its dominion, the statement about Tencent's WeChat doesn't have much leg. Fine, they can ban its use in the U.S., a minor market for Tencent anyways. That said the nuclear option of forcing the WeChat off Apple's product (which is being asked here) and potentially [although this hasn't been said yet] asking Tencent divest its U.S. equity holdings* is in my opinion a line that would beg for a response from the Politburo. I can think of a number of U.S. companies whose growth is largely anchored on the China story, Starbucks, Tesla, Apple itself that would become fair play. So I don't think it will get there. WeChat might be something that Navarro shoved it in at the last minute as the statement was being drafted. *Tencent holdings includes: ~3% of Tesla, 5% of Activision Blizzard, 40% of Epic Games, 25% of Sea Limited (the south east Asian e-commerce listed in NYSE), 20% of JD-Com (which is actually a Chinese company but listed on NYSE)

For those interested, the book Reichmanns covers the Canadian-Jewish family known for their real estate empire built through the Olympia and York company, which largely floundered when their Canary Wharf development faced headwinds. I haven't read the book, so cannot get to the specifics, but browsing through it in the index section last week, the book has references to Cockwell, Brascan and Bronfmans etc. given that Reichmanns had business dealing with them in the latter part of the book. If I recall Canary Wharf was also owned by Reichmanns, prior to its sales to another party, which then sold to BAM. https://www.amazon.ca/Reichmanns-Family-Fortune-Empire-Olympia/dp/0679308865/ref=sr_1_1?dchild=1&keywords=reichmann&qid=1597184015&sr=8-1

https://www.bloomberg.com/news/articles/2020-08-11/brookfield-said-to-be-in-talks-for-blackstone-s-cheniere-stake?srnd=premium-canada Brookfield in Talks To Buy Blackstone’s Cheniere Stake

Bloomberg pegs at $12.8 billion of stock sale in Q2 alone (which I believe is net of new buys in Q2) and calls it the most in a decade. https://www.bloomberg.com/news/videos/2020-08-10/warren-buffett-bets-on-berkshire-hathaway-video

On Kraft Heinz: Note 5. Equity method investments (Continued) As of June 30, 2020, the carrying value of our investment in Kraft Heinz exceeded the fair value based on the quoted market price by $2.7 billion (20.6%). In light of that fact, we evaluated our investment in Kraft Heinz for impairment. We utilize no brightline tests in such evaluations. Based on the available facts and information regarding the operating results of Kraft Heinz, our ability and intent to hold the investment until recovery, the relative amount of the decline, and the length of time that fair value was less than carrying value, we concluded that recognition of an impairment loss in earnings was not required. However, we will continue to monitor this investment and it is possible that an impairment loss will be recorded in earnings in future periods based on changes in facts and circumstances or intentions. They performed no impairment as they judged the market value 20% discount to carrying value to be temporary. For reference in Q1, the gap stood at 40%, which had narrowed considerably by close of Q2. Yet, on PCP, which has no publicly traded quote [so no pressure to write-off], based on their DCF model and carrying value, they took the axe right away. This says either PCP was deeply overpaid, as indicated earlier by Spekulatius [i think Semper Augustus fellas also alluded to that as well], or BRK really sees aerospace value chain severely impaired. Or both. It is almost as if they took it as an opportunity to take the axe. I believe although under heavy pressure, the value chain is not severely impaired, given that the OEMs need to maintain a steady but lower production rate, even if airlines cannot intake them. The alternative is loose entirely their supply chain. i.e. Airbus cut its rate on A.320 from 60 per month to 40 and will not get below that.

^^^ bulls-eye Folks, On page 2 of the report, it is comparing the B/S snapshot from Dec 2019 to close of Q2 (i.e. June 2020). What do you think is the pacer behind the $48 billion reduction in equity securities. This is not end of Q1 that had huge downdraft, some of it came back with the bounce back. Also about $50 billion seems to have flown into U.S. T-Bills during the same six months period. ASSETS Insurance and Other: Cash and cash equivalents 32,318 $ 61,151 Short-term investments in U.S. T-Bills 110,518 63,822 Investments in fixed maturity securities 19,210 18,685 Investments in equity securities 207,454 248,027 EDIT: Q1 had $68 billion loss in the investment portfolio Q2 had $39 billion gain in the investment portfolio Net for the six months comes to $29 billion loss; so that means the bounce back, notwithstanding Apple, didn't undo most of the carnage of Q1.