Munger_Disciple

I agree with you that FFH will likely do better than BRK (mainly because it is cheaper) from this starting point over the next 5 years with the following caveats: (1) FFH insurance underwriting results produce a decent combined ratio (I would take 98% but I know you think it will be 95%), and they don't get their head handed to them in the case of a catastrophic event (2) the Fed doesn't cut rates too much which it would in the case of a rough recession.

Of course the price you pay counts. The surprising thing is that even after 25 years, the returns were really poor after the purchase in 1999. I guess FFH was way overvalued in 1998-1999 time frame.

In the case of Fairfax, the CAGR seems to a very strong function of the start date of one's investment even in the very long term. If you zoom out a bit further, the chart looks like this in CAD (it hit a local peak of $540 CAD in 1998). If one invested in Fairfax on 1/1/1999 and kept it until 6/30/2023 for example, the CAGR after 24.5 years is only 4.54%. On the other hand, if you invested in FFH on 1/1/2003 and kept it till 6/30/23, CAGR jumps to 13.4% over the 20.5 year period.

@boilermaker75 If I understand your strategy correctly, you are writing short dated, cash secured puts on a few stocks like BAC, WFC & BRK. So you are effectively trying to earn a decent short term profit on idle cash in excess of ST T-Bills. If you get these stocks put to you, what do you do? Hold them (if so how long) or sell them immediately and take a loss?

That's outstanding @glider3834, great detective work!

Its like picking up pennies in front of a steamroller. As long you make it, you keep the pennies. Plus it adds hidden leverage & a potential liability that comes due at usually the most inconvenient time. You can win a few pennies many times which tend to get wiped out with one big loss. IIRC many smart people blew up (example: Victor Niderhoffer blew up twice) with variations of this put writing strategy.

Thanks @Parsad, makes sense to me. I would think that even in the current hard insurance market, they are likely writing more short tail insurance.

I was re-reading Prem's 2022 annual letter & he shows a table of gross premiums written and float from 1985 to 2022. I noticed that the ratio of float/gross premiums written has shrunk from 2.4 in 2010 to 1.1 in 2022. It used to be roughly 1.6 in the decade prior to 2010. Dos this mean that Fairfax is writing a lot more short tail insurance these days compared to the past?

"The modeled probability of aggregate catastrophe losses in any one year exceeding this amount is generally more than once in every 250 years." Very weird sentence. So they will lose 15% of their book value for catastrophic events that can occur with > 0.4% probability with no upper limit. That's how I read it. I agree, not very reassuring. At best, very clumsy wording.

I am trying to work out the math on Buffett's charitable giving. It looks like he gave at an annual compounded rate of 4.23% of his yearly holding of BRK stock since he first pledged in 2006. The interesting thing is that he initially pledged that he would give 5% every year of a total commitment of 401,667 A shares (though he owned 474,998 A shares at the time of the pledge) in 2006. He must have increased the amount of shares that he committed along the way. BRK stock compounded at an annual rate of 10.69% over the 17 years he began charitable giving in 2006. Also, I estimate that BRK bought back slightly over $2 Billion in stock since 4/25/23 until 6/21/23 based on the filing. I estimate that BRK currently has 1,445,609 A shares outstanding as of 6/21/23.

I think it is still related to fractional share trading which pretty much all brokerages offer these days (I know Schwab offers it). It is hard to believe that there was more dollar volume in A shares than B shares. 7,000 A shares are roughly equal to 10.5 million B shares.

Buffett the

@Viking One thing I would like to know is what % of FFH book value gets impaired in the case of a big (close to a worst case scenario) CAT event. Have you investigated it and do you have a reasonable estimate? As an example, Ajit estimated that BRK would lose a maximum of $15B across all lines of insurance business in the event of a horrible super CAT type situation.

@Viking FWIW I own a tiny bit of FFH (relative to net worth) so I would like to see them do well also . I hope to get more comfortable over time with them. Plus I have to root for a fellow IIT (Indian Institute of Technology, Madras) alumni Prem. I own a lot more BRK though primarily because I can sleep very well with BRK and I owned it for a very long time.

@Viking In my mind, the key for concentration is that there must be almost 0 chance of ruin. I don't disagree that FFH has higher potential upside compared to BRK but it also has a much higher probability of downside. Prem can wake up one day and put in a crazy macro bet and stick with it for 10+ years despite huge losses for instance ...... Plus it is impossible to ignore risk caused by FFH's much higher leverage, both operational and financial. I suppose the risk is a bit reduced in your case because you don't plan to keep FFH forever unlike a lot of BRK shareholders do with their holding.

+1 Ironically I think it is easier to have a bigger allocation to BRK than FFH. In my mind, % concentration in a single stock/business should be more a function of how much downside risk there is, not so much how much upside potential it has. The lower the downside risk, the larger the allocation can be assuming the expected returns are acceptable.

I voted 6. Too many investment decisions based on macro (sometimes they get it right, sometimes not). Sub-optimal capital allocation decision with respect to dividend. Too many cigar butt type investments which require trading in & out and incurring taxes as opposed to buying quality businesses and keeping them for very long time. Succession plan very unclear. On the plus side, excellent FI investment team & improving underwriting which I hope is permanent.

+1. I don't care for cream fillings at all. Other than the peanut brittle & the dark chocolates I mentioned before, I don't like most of See's chocolates or candies. They are way too sweet for my taste.

I also looked at Lindt & like you concluded it was very richly valued. BTW See's has an online store (https://www.sees.com/dark-chocolate) so you might be able to order from them. I recommend the following: Dark Almond, Dark Walnut, Dark Nougat, Dark Pecan, Dark California Brittle & Almond Royale.

I am with you on this generally. Love dark chocolate (especially the Belgian stuff), can't stand the milk variety. I am a naturalized US citizen, originally from India. But See's has added dark chocolates a few years back and some of them are very good. Try the dark with walnuts, marzipan and dark nougat at See's.

Berkshire press release about the consolidated 13-F: https://www.berkshirehathaway.com/news/may1523.pdf

Also didn't add to BAC. Just consolidated holdings from the two 13-Fs.

Thanks for sharing!

+1 I had the same thoughts exactly. Wonder if there would be nasty u/w surprises at FFH.

I found this blurb in Buffett's 1991 letter to shareholders: Malcolm G. Chace, Jr., now 88, has decided not to stand for election as a director this year. But the association of the Chace family with Berkshire will not end: Malcolm III (Kim), Malcolm's son, will be nominated to replace him. In 1931, Malcolm went to work for Berkshire Fine Spinning Associates, which merged with Hathaway Manufacturing Co. in 1955 to form our present company. Two years later, Malcolm became Berkshire Hathaway's Chairman, a position he held as well in early 1965 when he made it possible for Buffett Partnership, Ltd. to buy a key block of Berkshire stock owned by some of his relatives. This purchase gave our partnership effective control of the company. Malcolm's immediate family meanwhile kept its Berkshire stock and for the last 27 years has had the second-largest holding in the company, trailing only the Buffett family. Malcolm has been a joy to work with and we are delighted that the long-running relationship between the Chace family and Berkshire is continuing to a new generation.