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omagh

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Posts posted by omagh

  1. ValueCarl,

     

    This is the short article...no unusual criticism here, just highlighting the key factors in the YoY change.

    http://torontostar.morningstar.ca/globalhome/industry/news.asp?articleid=326936

    Lackluster underwriting profits were once again displayed in Canadian insurer Fairfax Financial Holding's FFH  FRFHF fourth-quarter earnings report. The combined ratio for all insurance and reinsurance operations was 102% in the fourth quarter and 100% for the full year. The company earned $1.65 per diluted share in the fourth quarter as investment gains were muted compared with last year. Fairfax made a great call several years ago and prepared itself for financial market turmoil, which resulted in outsized investment gains in 2008 driving fourth-quarter earnings to almost $20 per share. Not so this year, as the firm recorded a quarterly net loss on investments of $30 million versus a quarterly net gain of $681 million in 2008.

     

    Earlier in the day Fairfax announced that it was buying the remaining outstanding stock that it did not already own in American insurance company Zenith National Insurance ZNT for a 31% premium to yesterday's closing price of $29 per share. Because we do not cover Zenith and have no fair value estimate on the stock, we have put Fairfax under review as we determine whether this is a good deal for shareholders.

     

    Morningstar had a quick negative release criticizing the earnings QoQ tied to the fact that their "investment income" was light comparatively even pointing to the 30.3M investment loss in the Q.  It had been released on Google Finance, and I believe under the Toronto symbol FFH, but it is now gone, for some strange reason. I believe they also criticized the consolidated CR at 1.02 percent although my quick scan shows it at 99.8 percent. 

     

    This could be why they retracted such a fast, sloppy swat at the numbers, I don't know.

  2. It's better for the speculator to fail on their own dime than on CMHC's (read taxpayer's) dime.  Market stability through curbs is nothing new and a sign of an effective regulator.  Sure it dampens some market volume, but it avoids crashing a market that can have significant impacts in the wider economy (viz. US 2006-08, Toronto 1998-92, etc).  From the government's perspective, sales taxes (consumption taxes) still arrive at a regular rate from new housing starts at the expense of some capital gains which could be offset by capital losses in a speculative crash.

     

    -O

     

    Keep in mind that non-owner-occupied is typically a condominium bought off plan with maybe a 30-40K DP (7-10%). The non-owner-occupied bought early (to get the project off the ground), & probably received free upgrades, GST rebates, 1st time buyer (one per kid) credits, & 2 rounds of inflation increases during the 2+ years that it took to get built. There is a strong incentive to buy the biggest/glitziest condo possible, retain it for 6 months following possession, & then sell it off for a tax free gain.

     

    At 5% DP the non-owner-occupied didn’t need to put up any additional cash on possession as the initial deposit covered it. Now that non-owner-occupied suddenly needs to come up with a lot of new cash, & the bigger/glitzier the condo the more that’s needed. Either the non-owner-occupied almost immediately prices down & dumps (increasing inventory & deflating the bubble), or puts up more capital/condo (reducing the overall risk in the market).

     

    Notable is that the 5% DP still applies to 1st time buyers, but is subject to the tighter means test; so for now - our flipper has a market for their more basic condos at lower prices, but not their glitzier varieties. Once the turn-over has occurred, most expect that minimum 5% DP to change to a 10% DP & a maximum 30 yr amortization; another round of market risk reduction.

     

    Very elegant.

     

    Of course if you’re one of non-owner-occupied with a big & glitzy condo you might have a different opinion. As might the army of ‘designer’ folk whose job it is to make your place look glitzy.

     

    SD   

     

  3. I've been following Goodwood for a couple of years.  Goodwood has a value investment focus.  They largely play in undervalued Canadian small and mid-caps.  They're thoughtful and focused on their craft.  This should be a good partnership for Westaim.

    -O

     

    Regarding Westaim, Cameron MacDonald seem to be the new jockey here. He's a GoodWood fund manager and a focused value investor. I do not know him and have not heard of him before that transaction. It would be interesting to dig more about him. He seems to want to shift Westaim toward a diversified conglomerate with good businesses bought at good prices. Does somebody know more about him?

     

    Regarding Jevco, I don't know much about that insurance company. They seem to be a specialized insurer in automotive industry (higher risk profiles) and have recently diversified into more traditional fields. Somebody have more information about that company? It could be a TIG kind of situation, but it also could be a Northbridge one. That's what I'm trying to figure out actually. A jewel or a poisoned kool-aid glass?

  4. The weak speculators in the market just can't help themselves from self-inflicted errors.  When one starts, others will follow.  I'm increasingly following the Buffett, Klarman and Berkowitz views for having significant cash holdings in one's portfolio.

     

    http://online.wsj.com/article/SB20001424052748704905604575027601300360196.html

     

    Pensions Look to Leverage Up

    State of Wisconsin Investment Board Clears Plan to Borrow to Juice Returns

    Public pension funds needing to boost their returns but frustrated with hedge funds and private-equity investments are turning to one of the oldest investment strategies—using borrowed money to boost performance.

     

    The strategy calls for leveraging pension funds' safest asset—government or other high-grade bonds—while reducing exposure to stocks.

     

    The State of Wisconsin Investment Board, which manages $78 billion, became among the first to adopt the strategy when it approved the plan Tuesday. The fund will borrow an amount equivalent to 4% of assets this year, and as much as 20% of its assets over the next three years.

     

    Fund officials say that use of leverage could eventually go higher—in theory, at least, up to 100% of assets, according to the staff analysis.

     

     

    ...more at www.wsj.com...

  5. Gates reminds me of Michael Jordan during his baseball phase -- passing time, but wanting back in the game.  If memory serves, he's the 2nd largest BRK shareholder (~$6B) and he has the skills to replace Buffett when he passes.

     

    -O

     

    I saw in the paper today that Bill Gates has lauched a website that provides insight into what he is learning about and reading about.  I have yet to go through the whole site, but so far it appears to be a rather good resource from a rather good mind.  Perhaps he can get Mr. Buffett to do the same thing!

     

    Here is the link...

     

    http://www.thegatesnotes.com/Default.aspx

     

    mmiller

  6. What is that? Subtitles?  I thought I was keeping the messages simple...  ;D

     

    -O

    scorpion,

     

    That's the greater fool thinking by the "little guy".  

     

    = voting machine = short term

     

    BRK will ultimately rise or fall based on Berkshire's ability to increase intrinsic value.

     

    = weighing machine = long term

  7. scorpion,

     

    That's the greater fool thinking by the "little guy".  

     

    BRK will ultimately rise or fall based on Berkshire's ability to increase intrinsic value.  A reasonable set of assumptions using the 2-column valuation method shows BRK is slightly undervalued at present operating earnings levels.  With a modest recovery in the economy, that undervaluation will become more pronounced.

     

    -O

    ". It will also let the "little guy" buy a 100 share lot because the stock is now "cheap". "

     

    If the little guy could buy 100 shares after the split he could buy 2 shares before it. It must be for those who can't even buy 100 shares post-split.

  8. Maida is always a worthwhile read.  It's amazing to see his record over the last decade while holding such large amounts of cash.  His chart on market capitalization to GDP is probably the driver behind the large cash component in his portfolio. 

     

    Opposite of the Hoisington view, he sees inflation rather than deflation as the significant mover of valuations.  He pointedly sees risk in long bonds.  With rising inflation, stock valuations should begin to revert to the long-term mean where cash can be put to work.

     

    -O

     

    Vito Maida, who runs Patient Capital, had an interview in the Financial Post which was printed Saturday:

     

    http://www.financialpost.com/opinion/story.html?id=0c4200d8-ee15-4aac-ad38-e7ca1449ec72

     

    Maida, who left Trimark ten years ago to start Patient Capital, has not had a negative year since inception.  He currently sees that large-cap U.S. equities are reasonable, while remaining very cautious about the markets and economy.  He does not expect a V-shaped recovery.  His October letter can be found here as well:

     

    http://www.patientcapital.com/newsletters/newsletter-2009-09.pdf

     

    Again, I could not agree more with his sentiment.  Cheers!

     

     

  9. ValueCarl and everyone,

     

    How about if we cool the snippy responses.  Otherwise, we're heading into timeouts and bans.  Let's keep a civil and respectful tone.

     

    Don't drink and post...Happy New Year!

     

    -O

    (puts down glass of wine)

    In ancient times, pharaohs by decree would have their way.

     

     

    Sianara, pompous men filled with the hubris and arrogance of Egypt before her plagues.

     

     

    <Go elsewhere!>

  10. Viking,

     

    http://www.rationalwalk.com/?p=281

    http://www.loschmanagement.com/Berkshire%20Hathaway/Financial%20Tables/8.%20Two%20Column%20Valuation/2008%20valuation%202%20column.pdf

     

    This is probably the model that you'll want to look at -- the 2-column model which Buffett has suggested as an approach in his annual reports.  This model will show that there is a modest undervaluation in the range of about 20-30% depending on assumptions.  You'll also want to consider the range of values that Buffett was willing to use in the BNSF purchase where stock was a component of the deal.  He put a collar on the upper and lower ranges (I just don't have it at my fingertips, but I did see it in the last few days) which give an indicator of intrinsic valuation.  At 100K for an A share, I recall that it was about dead centre in the collar ranges.  Hope that helps...

     

    EDIT:

    http://www.bnsf.com/investors/berkshire-hathaway/pdf/berkshirehathaways4a_20091223.pdf

          If the merger is completed, each of your shares of BNSF common stock will be converted into the right to receive, at your election (subject to the proration and reallocation procedures described in this proxy statement/prospectus), either (i) $100.00 in cash, without interest, or (ii) a portion of a share of Berkshire Class A common stock equal to the exchange ratio, which is calculated by dividing $100.00 by the average of the daily volume−weighted average trading prices per share of Berkshire Class A common stock over the ten trading day period ending on the second full trading day prior to completion of the merger (the “Class A average trading value”); provided, however, that if the Class A average trading value is above $124,652.09 or below $79,777.34, then the exchange ratio will be fixed at 0.000802233 or 0.001253489, as the case may be. Fractional shares of Berkshire Class A common stock will not be issued in the merger. Instead, shares of Berkshire Class B common stock will be issued in lieu of any fractional shares of Berkshire Class A common stock and cash will be paid in lieu of any fractional shares of Berkshire Class B common stock. To facilitate the merger and related transactions, Berkshire is seeking stockholder approval to effect a 50−for−1 stock split with respect to its Class B common stock. Shares of Berkshire Class A and Class B common stock are listed on the New York Stock Exchange under the stock symbols “BRK.A” and “BRK.B,” respectively.

     

     

    -O

     

    BRK appears to be priced at an attractive level today to deliver reasonable returns going forward. I am trying to decifer if it is cheap or VERY cheap. I have ready the standard reports and also done a fair bit of searching on the internet to get as much input as possible. My thinking is (as Buffett said): better to purchase a great company at a reasonable price than a reasonably run company at a great price.

     

    Peter Lynch has a great line about how doctors love to invest in commodity plays and those working in the commodity sector love to invest in health care. I have a small position in BRK (5%). I am trying to decide if I should move this to 7.5% or perhaps even 10%. Given that this is a BRK website, I was wondering if others have an opinion regarding the investment merits of BRK. Or has anyone come across an analysis or web site that they can link me to? Thanks.

  11. Pof4520,

     

    I'm currently reading Klarman's book and re-reading Graham, so this question is top of mind -- Are you a speculator or an investor?  If it's undervalued in your valuation model and you've diligently researched your assumptions, why do you care what others think?

     

    Is MCF undervalued based on future cash flows or are you hoping for someone to buy it at a higher price?

     

    -O

    I don't know how and why MCF isn't more popular.

  12. Viking,

     

    BRK is selling at a discount in my valuation model.  The operating businesses have a significant upside when the US economy recovers.  US$/CAN$ trade will always have CAN government intervention when the CAN$ affects export markets.  There is usually some reaction around parity.

     

    Buying a depressed BRK in CAN$ should raise the margin of safety in your favour.

     

    -O

    The one stock I am thinking about increasing my position in is BRK (again, as a stallwart, holding it in place of a bond) with the goal of getting 6-10% per year.  

     

    Should the CAN$ continue to strengthen I will likely buy more BRK.

  13. Watching the growth of core positions and additions purchased at discount prices in 2008 and 2009, piling up new cash inflows, and finding depressed cyclicals for tack-on minor positions.  2010 will be a focus year for expanding the watch list, developing a deeper understanding of a select few companies, and watching for mis-valuations in under-followed FCF-generating small caps.  Hopefully, 2010 will be a slothful year, but I'm prepared for more.

     

    -O

    What are the board members top picks for the new year?

  14. Cdn real estate market is overvalued compared to historical valuations - sell, trim holdings, raise cash...  Cdn banks may not be as profitable in the next couple of years and their balance sheets will be under siege.

     

    http://www.financialpost.com/story-printer.html?id=2368846

    Piet Eichholtz, a professor of real estate finance at Maastricht University in the Netherlands, came to a similar conclusion when he studied real estate prices in an Amsterdam neighbourhood from 1628 to 1973. He found that home prices required 350 years to double in real terms.

     

    If you assume home prices should rise in line with inflation, you come to a dire outlook for Canadian real estate.

     

    Taking figures from 1990, 1995 and 2000, and boosting them by inflation during the intervening years, suggests the national average home price should check in around $200,000 -- a third less than the current figure.

     

    More sophisticated calculations arrive at similar estimates. David Rosenberg, chief economist at the money manager Gluskin Sheff in Toronto, examined home prices in relation to personal incomes and residential rents. He concluded that prices are between 15% and 35% above levels that are consistent with fundamentals.

     

    "If being 15% to 35% overvalued isn't a bubble, then it's the next closest thing," he writes.

     

     

    "The most dangerous time for a country with 5 yr fixed rates must be when rates are near all time lows and prices have already risen to account for it.  Significantly higher interest rates... can people afford the rate reset?"

     

    These are amortizing mortgages, & the rate was set 5 years ago when the 5 year rate was much higher than it is today. As the outstanding is also lower, the significantly higher reset simply results in something close to what you're allready paying.

     

    The major risk reduction is from floating rate mortgages suddenly converting into 5yr fixed rate. The home owners additional cash requirement from higher rates doesn't occurr, & surplus cash goes into fixed rate investments (GIC's) earning the home-owner a spread (GIC - mortgage rate). Refinancing volatility safely comes out of the housing market.

     

    SD

     

       

  15. More from Ben Stein

    http://money.cnn.com/2009/12/18/news/warren_buffett_stein.fortune/?section=magazines_fortune

    This, however, said Buffett, was not a reason to doubt the stock market's 2009 comeback. Buffett noted that the biggest gain the Dow had ever notched in the postwar period came in 1954 when, according to him, the unemployment numbers were dismal (although nowhere near as bad as today's) until late in the year, when a rapid recovery began.  The same thing could be happening now, he said. (I checked this later and as usual, Buffett had it right about the recovery from the 1953-54 slowdown.)

     

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