omagh

Not significant, but worth noting...there has been a lot of blue sky talk on this board recently about portfolio moves, but we are partners in the business of insuring property and casualty. What are the potential costs of an LA quake? http://news.google.com/news/more?pz=1&ned=us&ncl=dmzueHlyQfc8k-MtYk2tM-7NSt5LM&topic=n -O

Mandeep, Here's an old joke that my dad told me (http://everything2.com/title/wise%2520old%2520bull). Don't get too excited about doing something, or you might do a half-assed job. :D Insert Warren Buffett as the old bull and he's been telling investors for years that investing is simple, watch lots of pitches, swing at the fat ones. He also tells us that his worst investing mistakes were the ones of omission. From the Berkshire annual meeting in 2004: When a shareholder asked for Buffett's worst mistake in recent years, he answered: Wal-Mart. "I set out to buy $100 million shares of Wal-Mart at a [pre-split price of] $23," recalled Buffett. "We bought a little and it moved up a little and I thought maybe it will come back a bit. That thumbsucking has cost us in the current area of $10 billion." Cheers, -O

The "switching costs" of Coke and Pepsi are also "zero", but you're looking in the wrong place. Here are some ideas on Google's moat. The value is in the product distribution networks. Essentially a large distribution network accompanied by strong branding can be extremely difficult to displace. Think also about how MacDonald's monetizes their large distribution network (80% gross margins off franchisees vs ~20% owned restaurants) where franchisees pay monthly subscriptions (branding, food, etc) to belong to the network. Google also monetizes businesses that advertise on-line since they are one of the few ad distribution networks and companies are willing to pay recurring monthly subscriptions to belong to Google's ad distribution channels because of their reach. Google is providing good results to consumers through their search property (~60% marketshare) as well as various sub-properties (e.g. email, video streaming, etc). They have developed an ad distribution network which provides access for companies to their various customer-facing properties. The larger the properties, the more valuable the ad distribution channels. Also, the ad distribution network has a tendency to displace other competitive networks (the so-called "network effect"). Further, the barriers to entry are now significantly high, such that few competitors have the pockets and skills to build comparable ad distribution networks. MSFT, a worthy competitor in other markets, isn't committed to this market and is having its hat handed to it -- Gates knows and he talks to Warren and Charlie. Even their desktop monopoly is becoming increasingly irrelevant (smaller relative market size, new competitors, government regulation, MSFT's weakening management caliber) compared to the advertising markets (trillions). So, now the hard part is to model it and value it and determine what the "margin of safety" is and what the stability of the "owner earnings growth" is and that will give you some appreciation of GOOG's intrinsic value. Munger offers one fantastic clue given his understanding of moats which is much deeper than mine. - O

I see some board members lurking in the background of the first camera shot. Hi Sanjeev! ;D -O

There is a Q&A session following Prem's presentation and the formal meeting of shareholders. It's very worthwhile to attend if you're able to make it. -O

M'ville, I have a portfolio chunk in ORH and certainly not adverse to making substantial bets. I'm curious about the case to put a half-portfolio weight into ORH? ORH is a fine company, their investment advisor (Hamblin-Watsa) is excellent. What makes this a 50% vs 20% portfolio weight? Not challenging, just curious. -O

http://www.nytimes.com/2009/04/03/business/03motors.html?partner=rss&emc=rss&pagewanted=print G.M. Willing to Consider Bankruptcy DETROIT — General Motors stated in a regulatory filing to the Treasury Department on Thursday that it is prepared to file for bankruptcy protection if it cannot restructure out of court. It echoes what G.M.’s new chief executive, Fritz Henderson, said this week, but marks the first time G.M. has officially disclosed to President Obama’s auto task force that it was willing to consider such a step.

+1 Please, no more prima donnas and divas! ::)

Hi KFR, Bankruptcy seems to be in the cards...The warranty guarantee ensures that this consumer liability will be backstopped by the government rather than the new equity. I was reading these links this morning which support your theory... http://www.calculatedriskblog.com/2009/03/government-gm-chrysler-may-well-require.html http://www.calculatedriskblog.com/2009/03/administration-on-gm-chrysler.html -O

Hi Mungerville, You're probably thinking of a different set of data using "trailing E" vs "realized forward E". Using trailing E generates the graph that you likely have in mind. http://seekingalpha.com/article/125756-more-on-roubini-and-shiller-s-dour-outlook Hopefully this graphic comes through, but if not, here's the link: http://static.seekingalpha.com/uploads/2009/3/12/saupload_historical_pe_ratios.jpg http://static.seekingalpha.com/uploads/2009/3/12/saupload_historical_pe_ratios.jpg - O

Private capital is telling us that reinsurers are undervalued, but some aren't well-capitalized. ORH will rise as prices for other reinsurers get bid up. FFH may take ORH private before long. -O http://www.bloomberg.com/apps/news?pid=20601087&sid=aBsxbPhfQrDw&refer=home Billionaire investor Wilbur Ross said he’s considering buying and combining reinsurance companies with a market value of $1 billion to $2 billion after a drop in the stock prices of carriers around the industry. “We’re certainly looking,” Ross said today in an interview after a speech at a conference in New York. “There’s an awful lot” of companies with equity of between $1 billion and $2 billion, Ross said, without identifying potential targets. Consolidation among reinsurers is likely to increase because of a scarcity of capital, Ross, 71, said during his address. Max Capital Group Ltd. agreed to sell itself to IPC Holdings Ltd. on March 2 after investment losses helped push the shares down by about a third in six months of Nasdaq Stock Market trading.

Al, You'll like this tidbit...lots of footdragging in shutting down AIG's FP unit. http://www.businessweek.com/investing/wall_street_news_blog/archives/2009/03/aig_means_busin.html?chan=top+news_top+news+index+-+temp_news+%2B+analysis Cheers, -O

The funny thing about the AIG CEO (Ed Liddy) letter is the premise that AIG is a "going concern" that needs "good people". Why isn't AIG explicitly being put into run-off? Clearly, the governance failed, it can't pay its counter-parties without government aid, and it's a bankrupt entity. Effectively, it has debtor-in-possession financing from the government. The government's role should be to bring stability to the market and to shut AIG down by selling off the viable parts and running off the remainder of the toxic contracts. The government is engaging in "moral hazard" and unintended consequences with its handling of AIG. This is going to go on for years.... -O

Hi Vinod, You can print this version filed with the SEC... http://www.sec.gov/Archives/edgar/data/915191/000090956709000229/o54015aexv1.htm http://www.sec.gov/Archives/edgar/data/915191/000090956709000229/0000909567-09-000229-index.htm http://www.sec.gov/Archives/edgar/data/915191/000090956709000228/0000909567-09-000228-index.htm -O

From a going concern view, AIG is dead in the water without government capital and loan guarantees. Has the government given indications that AIG will be put into run-off? Will AIG be allowed to continue writing new business? It is obvious that government intervention which subsidizes AIG's cost of capital for new business will distort the marketplace. If one views AIG as GoodCo and BadCo (containing CDS derivatives, etc), is the government subsidizing just BadCo or GoodCo as well? -O

Having been through the FFH panic of '03, these last few days have a similar feel. Luckily, I have dry powder for my elephant gun ;) Cheers, -O

This company (CGS) has good assets, but a ghastly capital structure. 10 years ago, this company was mostly television media assets and had an ROE of 30% with an appropriate leverage (1:1 assets:equity). Their modus operendi was to find a desirable asset, buy it with leverage and then pay down the debt with operating cashflows. Then, the company started on a path of "diworsification" as Peter Lynch calls it. They purchased the assets of the Southam newspaper chain which probably had an ROE of 10% in its best year. CGS loaded up with much more debt. Izzy Asper became ill and eventually passed away which gave his sons and daughter the reins. The 2nd generation led by Leonard Asper was not seasoned and was saddled with a much worse capital structure. There was an additional purchase opportunity for Alliance Atlantis which took on more debt and a disadvantaged partnership with Goldman Sachs. Basically, at this point, the debt became silly (forgetting numbers here, but 3.0-3.5:1 assets:equity) and rather than raising new capital or selling other assets, Leonard et al hung on. Fairfax / Chou Funds sensing an undervaluation have piled in and bought 20+% of the company. It's a dual-share structure with a Class A multiple voting class and subordinate single voting class. While this share structure is more common in Canada, it's not desirable. Fairfax also uses this structure which allows a single executive (Watsa through his SixtyTwo investment holding firm) to control the company with a minority capital investment. Fairfax has been counselling Leonard Asper to deleverage or seek new equity. At this point, the company will go bankrupt without a new capital injection. I've been predicting that Fairfax would be forced to make a decision to add capital or they would have to walk away from their equity investment. At the end of the day, the assets are worthwhile. Surviving this recession will allow the assets to perform in the future. Media companies are dependent on advertising revenues which are typically dominated by auto, financial, consumer durable, retail, beverage, consumer healthcare, etc. Some of these sectors are deadly today and aren't spending which puts the media assets business model into some question. Any well-financed media company would be benefiting from this environment to cherry-pick competitor assets. Bottom line: Canwest will be bankrupt without a convertible debenture from Fairfax and/or others. The terms will be egregious, but profitable to the debtholder. The Goldman/Canwest partnered assets will likely be sold. Management teams will change. I'm not sure that Fairfax has the fortitude to become an activist investor, but I'm sure that a Sam Mitchell on the board of Canwest will help push things along. Cheers, -O

I think that a better question is at what price does Berkshire start buying in shares? My last significant purchase of BRK was in Feb 2000 when the A shares touched $45K. At that time, Buffett announced publicly that Berkshire was considering buying shares. Here we are 9 years later, and a similar timing/situation is occurring. I expect that we will see an announcement from Berkshire shortly.

Here you go... http://cornerofberkshireandfairfax.ca/forum/index.php?type=rss;action=.xml http://www.google.com/reader/view/feed/http%3A%2F%2Fcornerofberkshireandfairfax.ca%2Fforum%2Findex.php%3Ftype%3Drss%3Baction%3D.xml

Thanks Sanjeev...I really appreciate the extra effort to make things work, especially since this is on your personal time. Thanks again! :) :) :) Cheers, -O

Hi Sanjeev, Apparently full RSS feeds can be turned on in this newsgroup. From a moderator on the SimpleMachines forum: ACP -> News and newsletters -> Settings -> Maximum post length set 0 to disable limit

http://www.leggmason.com/individualinvestors/documents/insights/D7407-Bill_Miller_Commentary.pdf So, Bill Miller got savaged by this board. Bad decsions, bad results, lots of piling on by board members counting their FFH winnings :) Miller provides some good points on the current state of financials and points out some of the potential winners in the finance sector (WFC, PNC, etc) I'm posting this commentary since despite his performance woes, he's still an insightful commentator on the current state of the markets. Full disclosure - I have never owned any Legg Mason funds. "...The financial authorities seem to think of private capital as, to borrow a phrase from Justice Holmes, some “brooding omnipresence in the sky.” Private capital is us, it is Davis, it is Dodge & Cox, it is Brandes and so on. That is, it is mutual funds and pension plans and endowments, and every time we have bought bank shares, either new capital or existing shares, we have been killed. Until policy becomes clearer and more capital friendly, the chances of attracting new capital to banks is nil, in my opinion. Policy has improved. It has moved away from being purely punitive—wipe out shareholders (private capital) if the institution needs government support, a counterproductive policy if there ever was one when you are saying the banking system needs more private capital—to one that is opaque and apparently confused. Coincidence or not, the rout in banks now underway began when reports began to circulate that regulators wanted Citigroup to sell assets and shrink its balance sheet. Citi has since announced a plan to do just that, and the stock has collapsed. There are at least two major problems here: first, the regulators are subverting the governance process (if the stories are true) and making strategic decisions that are the purview of management, and second, who is going to buy hundreds of billions of dollars worth of assets from Citi in this environment? If the government wants board seats in return for capital, that would be fine. But to have an anonymous regulator apparently deciding what the right size of Citi is, or declaring that Bank of America has to cut the dividend to a penny per quarter, leaves investors completely in the dark as to who is responsible for their capital and what policies the institution will pursue. As to the second issue, no one will buy those assets without the prospect of earning a significant risk adjusted return, and if the buyer is going to get such a good deal, then it is a bad deal for Citi. At this point, no one knows what policy is. Is it to shrink the size of the biggest banks so they don’t pose systemic risk, as Chairman Bernanke apparently suggested in his speech, and as the actions of Citi may suggest, or is it to have them bigger and more diversified, as the additional capital to Bank of America to complete the Merrill deal suggests? Attracting private capital to banks requires, first, that there be a reasonable prospect of earning a good return on that capital, and so far the record is that there has been the opposite: capital committed has been capital lost. Second, policy has to be transparent and not opaque and ad hoc. Third, the accounting rules need to be sensible instead of idiotic, as is now the case with so-called Fair Value accounting. ... The problem with credit, by the way, is not that banks are not lending, a statement one reads almost every day in the Wall Street Journal or the Financial Times, or hears from some politician or other. The facts are, according the Federal Reserve4, that bank lending has grown 5.7% since the recession began in December 2007, and consumer loans grew 8.9%. Only home equity loans actually declined. The problem with credit is that it is far too expensive to make it economic to use it to grow. With investment grade debt having yields greater than the growth rate of nominal GDP5, the cost of new debt in the system exceeds the ability to earn enough to pay for it. Hence, the deleveraging going on. The government on the other hand, can borrow at half the growth rate of nominal GDP, and hence, it is the government that will, and should, borrow aggressively to invest in the country’s future. Cheers, -O

Hi Sanj...thanks for taking the personal time to set this up. It's a tremendous resource for the extended BRK & FFH communities. Your board software has an RSS feed which I've been using. Does the software have an option for "full feed" and "partial feed" or "headline only"? I hope that it's not too much to ask, but it would be great for some of us if you could turn on the full feed. Hopefully you're tracking upstream bandwidth and can establish a baseline before turning this feature on. If it turns into an additional operational expense, that's not intended. RSS feed readers (e.g. Google Reader) provide a great way to speed through the postings, especially if the full feed is available. Then one can pick and choose the items to respond to. Again...it's awesome what you've pulled together in your own time...thanks! :) Cheers, -O