Xerxes

I did find it interesting that they did not react more forcefully in 2018. If the framework that they have is that in 2016, the economy flipped and therefore higher rates were coming, one would have expected that in 2018 they would have bought the dip in the bond market (i.e. locking in some parts). That they didn't, could mean that they expected the rate to go even higher than it did. In late Dec 2018, when the stock market took a plunge, it took some dovishness from the Fed in mid-Dec 2018, to calm the beast. So maybe that dovishness ended that rate increase cycle then. Fast forward into this new economic cycle, if there are far reaching consequence from pedal to the metal Fed policy (i.e. inflation being more perm than transitory), than that would be another opportunity. It just seem to me they are "waiting" for substantially higher rates before locking. If there is an opportunity in the next 8 months, i hope they wont miss it. March 2020 was interesting. They deployed about 7% of their $40 billion portfolio as spreads opened (corporate bonds i believe) up, and rode the collapsing spread from 4-5% to 1-2% approx. Amazing but one would ask, why not more than 7% allocation. Was it because it was too fast ? if the downturn was more prolonged, than that new reality would have different than the one we went through, therefore, it is likely that a larger 15% allocation as spreads opened up would not have snapped back that fast. Therefore, current reality: 7% allocation in March-April 2020 as spreads opened up => made your money in 6 months Alternate reality: +15% allocation in March-April 2020 as spreads opened up => still licking your wounds

I think the tailwind from substantial deployment of that dry powder in the bond portfolio will totally crush and net out any headwinds on its equity portfolio. Until then the stock doesnt deserve a premium to book. I complained in the other thread, about him being perma-bear for so long (2010-16), the positive effect of that is him having that substantial dry powder available and un-deployed.

Matt, If I may suggest: Own FFH for what it is & not what you want it to be. What FFH is today is a company with large bond portfolio with short term duration, well suited to deploy it into this transient/permanent rising inflation/rate environment. J. Powell is helping to create that mother of opportunity for FFH. Druckenmiller talked about just now on CNBC and had a piece on WSJ. If the fall in growth/ARK and rise of value are the two sides of the same coin, than FFH can play that trade through its bond portfolio and stay away from something that historically may have been just awful in executing. Said differently, you are getting what you want but through a different lever. Lastly, at no point Prem did mention Tesla as as short. The Tesla short speculation started here.... that said it is also true that a number of 2008-09 bears who did well during the GFC seem to have a correlated point of view that Tesla was doomed and shorted it. So by that logic one can correlates that Prem also shorted Tesla but that is purely speculation. We did however get an additional piece of info during the AGM about it. He said it was one short position from 2019. After AGM, i said to myself let me go through the realized/unrealized shorts in the 4 quarters of 2020 and find out the likely 2019 short candidate, but then wisely decided not being worth my time. Prem mistake was to think that he was the Valuation Policeman giving speeding tickets to inflated tech names. For a macroinvestor, I think he entirely missed the impact of a lasting low-interest regime on valuations. Chanos and other successful short sellers, on the other hand, makes their dough by shorting mostly names where there is trigger or reason (fraud etc.) in the same period. PS: but then both Buffet and Druckenmiller also did not see the magnitude of Fed intervention to prevent a complete market collapse. BUT they pivoted when facts changed through 2020, while Prem remained perm-bear from 2010 till 2016. Or at least that is my understanding.

Interesting clip with the Redfin CEO on low housing inventory. My personal view has been that once the economy re-opens and rate start to climb up the great dash to move to suburb will slow down. As folks settle down and start enjoying life. I of course have no global view on the housing market but listening to this clip, they see this (bias view for sure) as a multi-year event that igniting a housing construction boom given the low inventory. So, does that mean lumber prices will stick for some times if this rally has some legs. Redfin: U.S. Housing Inventory at Record Low, Getting Worse - Bloomberg On a different note, all these houses that have been bought by the newer generation using apps like Zillow, Redfins or Opendoor, will probably come with an owner that is more likely than not make use of services like ANGI as oppose to call up contractors like I do to get a quote. The opportunity is there for ANGI, the hard part I guess is execution and having that pipeline of "pros" that haven interest.

thepupil, i probably have the same thinking as you do in terms of having a continuous flow from the paycheck, but cap that contribution when i hit the ceiling of the tax-free account. i rather use the surplus $$ to do renovation work in the house, first, then adding to non-taxable account.

TRS are a levered-play, if they sense the bounce back is losing steam at some point in 2021, they ought to unwind the position, capture the gain and live to trade another day. Good news is that with some of their holdings doing well, their margin of safety keeps increasing.

While Munger + Buffett are not above criticism, it is also true that CNBC is a TV show, and the more critical they are the better they'll do. No one is going to click on YouTube to hear Cramer saying how right Buffett was about Robinhood. Few quarters ago, Adam Jonas gave a really weird price target for Tesla (something like low two digit for a bear case), and Cramer toasted him for that, saying that the only reason that price target was made by Morgan Stanley was to generate discussion & a buzz about themselves .... i guess Cramer did the samething. In the next few days, we will probably have Chamath weigh in as well. To stay/look relevant, irrelevant people need to anchor themselves against the words of the relevant few. full disclaimer: i am irrelevant as well.

SD, i dont think that last statement is correct, just based on my understanding of a TRS. FFH can of course buy whatever quantity it wants of its own shares at the end, but i dont think it will be as part of TRS agreement or within that sandbox. Of course if FFH does a buyback at the end funded by TRS gains, than it would akin to doing a buyback in Q4 2020/Q1 2021 when share price was much lower.

And there is the Munger statement as well when they were discussing culture where he said: "Greg will keep it that way"

i believe you are right vis a vis TRS vs. commons. The whole statement confused me.

I think the "you had seen a quick glance back in 1903 of all the interstate highways, 290 million vehicles on the road in the United States, everything about it and had realized 'Well, this is pretty easy. It's going to be cars. It can be autos.", was squarely aimed at the new herd of retail investors buying anything EV related. On the comment about 1989 vs 2020 vs 2050, who knows what will be there but i dont think it is unthinkable to think Alibaba wont be there. Propelled by the sheer macro-tailwind of Chinese economy, it will be there somewhere. An interesting contrast is with that of Yukos and Michael Khodorkovsky, that Moscow took over in 2004 and subsequently merged its asset with Rosneft. That Russia could do given how tangible were the resources and the assets. If you were to give $700 billion (Alibaba' approx market cap) to the Chinese Communist Party to rebuild Alibaba from scratch, they probably couldn't do it. Same for Tencent. It is interesting though, we went from Deng Xiapong era, to Ziang Zemin era, to Chairman Hu era and now Xi era. The latter is has been pushing the "state" to reclaim its commending heights, yet it was in 2006-07-ish (Hu era) that I recall seeing on the cover page of The Economist the world largest companies, among them Gazprom, Bank of China, Agriculture Bank of China, etc. etc. all/mostly stated-owned entities. So will we see in 2050 Chinese state owned companies, i doubt it. Chinese will be there in 2050 on the top 30, but it will be their private enterprises (Alibaba, Tencent of the world). Could these two be de-throned by another Chinese disruptor, possibly, but they will not be de-throned by the CCP.

He was asked about the TRS, but he diverted his answer and start talking about buying the market dip in 2020. He is referring to the trade that Wade and the team put in. That is why he said we already sold. See letter from March, where he says that they sold about $200 million of shares. It confused me as well, because i thought he was saying he un-winded the TRS trade, but he also said he added to it, which made no sense. Looking back i think he was talking about the Wade trade where he says they already sold some. "After the March/April crash in the stock market, we could not resist buying Exxon shares at a dividend yield of 10.5%, Canadian banks at an average yield of 6.1% and some other companies like Royal Dutch Shell, Alphabet, FedEx and Helmerich & Payne at very attractive prices. We sold approximately half of them in 2020 for a profit of $212 million or an average gain of 40% on our investment."

Some thoughts on the AGM: - Airlines: the point that he made that maybe BRK would have been the one doing the bailout of the Big Four if he did not divest the shares, is an important point and not considered in the past. I could imagine the discussion within the Treasury when BRK dropped the shares that "damn, the BRK option is now out of reach", so as steward of Berkshire capital, I think Buffet was more concerned about those things and the right calls were made. The reality is that in 2008-09 he chose the type of institutions where he wanted to be the one doing the bailouts. Whereas in 2020, he would have been forced to be involved in the Big Four. I never appreciated the level of care he takes with company's capital, as the steward of capital, until now. The Big Four airlines simply did not have the permanence that he looks for in a business and he would never want to be pass the 10% ownership. The pandemic drove that point home for him. I also see the shedding of hodge-podge collection of banks as a good thing as well. With that, and the importance in today's working from home world, it is no surprise that he sees that permanency in the like of Verizon, and its dumb digital pipelines. Also, in an interview few years ago in Texas, he made the comment how Apple has that permanency and that it along with BRK and perhaps one or two other companies, have that permanency (paraphrasing). - Alibaba : would have loved to hear more. But i think given that (1) Munger bought in and (2) sees no clamp down and no major reversal from Deng Xiapong era, it must be enough for me i think. - Apple: so he trimmed some. Find it cute that he would make sure that at per share level, we still have the same exposure to Apple even as he trimmed due to buyback. BNSF was said to have an implied value of well over $120 billion or so (given the bidding war between CP and CN). Imagine if BNSF was not wholly owned, would he trim at this peak valuation slightly ? in his mind BNSF and Apple are about the same size, i think there is a tug of war in his mind: - Buffet the value investor: I need to trim some at these crazy multiples - Buffet the portfolio manager: suppose you do, and then what ? - Buffer the conglomerate CEO: this is a critical piece of digital infrastructure that we own, that is no different that BNSF, just happens to trade publicly. Diamond hands. - Japanese Trading Companies: would have been interesting if someone had asked/pushed for more on that to see what nugget he drops. I dont think he was referring to these companies when he said buying something he wasn't to clear on the business model. ** Bloomstran must have been getting pissed, during the pre-show when the Yahoo Finance folks kept talking about the $150 billion cash pile. ** no tweet yet from Elon Musk commenting on the AGM

I just finished listening to the re-run. He mentioned BAC twice in fact - second time as a contributor to FFH gains in Q1 (if i heard correctly). I am guessing we will see it in the 13F for Q1 as a new addition. Most probably a Wade-like allocation. Glad to see to tilt to quality continue even though this might be a small size position vs. the larger ones. Depending when they bought in Q1, this could be as high as 35% gain on Bank of America.

Agreed on timeline. The only concern is that the strategic sucker who will take the other side of the trade must know enough about the cyclicality of the business, to be wary to pay premium on top of the market. I just hope Fairfax are being creative to hedge somehow the upside gained thus far.

Thanks. One could say that Prem used the Reddit-GameStop recipe (buy-calls(derivative)-en-masse-force-market-makers-buy-shares-to-hedge-and the virtuous circle) a full quarter before GameStop made it popular. Not saying that it is the market makers that have pushed the price up but probably contributed to as the spring unloaded itself from a low base. Must give the man credit.

While Prem is not selling his Resolute into the rally, Brookfield is .... $1.25 billion worth Brookfield sells $1.25-billion of West Fraser Timber shares as lumber prices soar - The Globe and Mail "The sales – totalling 14.8 million shares – have cut Brookfield’s ownership of West Fraser from nearly 20 per cent to 7.3 per cent, according to Brookfield’s filings with securities regulators. In the past two weeks, Brookfield has sold nearly 1.24 million shares for $128-million; in a single day, April 1, it sold more than six million shares for $517-million."

What I want to know some years in the future is the back story behind this self-Total Return Swaps, which was put in place back in Q4 2020 and made public in Q1 2021. Clearly, someone(s) took the other side of the trade at the moment in Q4 2020 not knowing it was Fairfax sitting on the other side. Could it have been the short-sellers from a decade ago, eager to pounce, that took the other side on a name they know well. I guess it is not like there was a shortage of bears on the stock. But there is a difference between a bear and a bear that actually puts a trade on. The former is black bear while the latter is a grizzly bear. So who is the grizzly bear and how many ? ... or is it just market-makers, but then again my understanding is that market-makers are in the business of making markets and not keeping risks. So, if other side of the trade were all market-makers, than they probably hedge their exposure by buying Fairfax stock directly at the same time, thus contributing to its raise.

Thank you. I am big of fan of that podcast. I miss the voice/intellect of the gentleman who was doing the podcast with Stig, but also appreciate his Bitcoin dedicated podcasts (the not so complicated ones). On the Bloomstran episode, I wasnot able to catch all the nuances. I run while listening to these and this was 2 hours long and very in depth, but here is two comments: - why is it Bloomstran the only person that talks about the Gen Re pivot. Does he have some sort of intellectual property right on pointing that out and drawing that conclusion. Even Buffet hates the fact that he issued shares (even at a premuim) - if folks criticize Buffet for not going deep into March 2020 bear market (and selling JPM and the airlines at the wrong time), he is fully responsible for some of that criticism ONLY because he has been the one preaching the "when it rains, bring your bucket" mentality. Now the reason for doing what he did is perfectly ok and correct, but my point is that Buffet has been cultivating an image of a stock picker investor over the decades hunting for deals .... but what he really is, is a CEO of a fairly large conglomerate, first, who also happens to be stock picker value investor. So if people expected for him to go wild and picking up the bargains in April through May 2020, that was on the back of decades of expectations that was built up by him directly. When was the last time you saw Buffet on CNBC and talking in-depth about the railway, insurance operations. He likes talking stocks.

i am dragging myself kicking and screaming through Vikings season 4 (on Amazon prime). Man, such bad writing, but i guess i need to finish it. I did watch the "Courier" a spy movie set during the Cuban missile crisis. (very good movie). Cost as $14 USD, i locked that in with the FX being so low.

MV US $458 and BV at $478 hmmm ... FFH is getting expensive

Thanks ! so he has a call-option like agreement with the strike price being set at the Dec 31, 2019 price. ... and he can chose to forfeit that if the price doesn't interest him.

Longleaf Commentaries | Insights and Reports | Southeastern Asset Management "Fairfax Financial (FFH) (31%, 1.44%), the insurance and investment conglomerate, was a top contributor in the quarter. The COVID pandemic has had a dramatic impact on the insurance industry. Pricing trends had already turned positive in 2019, yet the losses and uncertainty from a global pandemic pushed the positive pricing trend, a “hard market” in insurance industry speak, to another level. As a result, sentiment toward Fairfax continued to improve as fourth quarter results demonstrated profitable underwriting with a 95.5% combined ratio, and premiums written increased 16% with significant contributions from increased pricing, as the insurance market continues to harden. Fairfax also invests a significant portion of its investments in equity securities with a value orientation. As the overall stock market and value stocks appreciated strongly over the last five to six months, Fairfax’s equity portfolio was a beneficiary. The company increased its book value per share 8% in 4Q, and we expect to see continued growth next quarter. With interest rates beginning to increase, Fairfax is also primed to reinvest in higher yielding debt. The company currently holds a significant portion of its fixed income portfolio in short-term instruments, putting the company in an opportunistic position to capitalize on higher rates. The stock still trades low on book value and normalized earnings multiples. CEO Prem Watsa repurchased over 5% of Fairfax shares through swaps to preserve capital for additional underwriting and also ended the costly market hedges that had stunted Fairfax’s value growth over the last 7 several years. The attractive price environment looks likely to continue, making this one of the best times in years for allocating capital into underwriting."

It is interesting, i was just looking at the 2020 letter and on page 10 i noticed the following: #Shares of RFP held was at 24.8 million (31%) of the company. Based on this and note from 2018, it looks like Fairfax did indeed sold about 6 million shares of RFP in 2020. Unless there is something i am not thinking about. And it is already accounted as equity investment (not consolidated) From 2018 letter: "Resolute. We have invested $791 million in Resolute and received a special dividend of $46 million, for a net investment cost of $745 million. Our initial investment was a convertible bond purchased in 2008 for $347 million. We invested an additional $131 million prior to Resolute entering into creditor protection and most of the remainder during the period from December 2010 to 2013. Subsequent to write-downs and our share of profits and losses over time, at December 31, 2018 we held our 30.4 million Resolute shares in our books at $300 million ($9.87 per share). The current fair market value of these shares is $244 million ($8.03 per share). You can see that Resolute has been a very poor investment to date!"

Daphne, FFH is a financial investor not a strategic investor when it comes to these type of assets. Sure, they are strategic investor in other type of assets either in specific region like India or specific sector. On the other hand, Jim Pattison, the other Warren Buffet of Canada, is into lumber business and in fact was busy building up position in the sector during a depressed market and was working to privatize Canfor in the 2019 year. Jim Pattison boosts stake in West Fraser Timber prompting shareholder rights plan - The Globe and Mail Was Prem Watsa busy building up position in the lumber sector during a depressed market ? Did Prem Watsa averaged down on this asset he had owned for more than a decade (i.e. one that he knows well) in March-April 2020, when RFP's entire market value was lower than its RFP's annual dividend payment in Q1 2020 ? no .. it didn't. To me that means he is not looking at it strategically, it is just a very-long short-term financial trade. Best to close the chapter in a hurrah. The RFP results are coming in about a week time. I think i'll tune in. If FFH doesn't lock in some gains sometimes in Q2/Q3 into the bull market, when then price action is above their own estimate of intrinsic value (after the write-downs), than when would they do that. At the next cycle ? ... or is there such a time as lumber-super cycle. Admittingly i am clueless on lumber and anything about it. Just an opinion.