Munger_Disciple

Good insight. I too view Fairfax as being riskiest of the three mainly due to insurance leverage. Berkshire's earned premiums ($70B in 2021) are a tiny fraction of its net worth compared to Fairfax where earned premiums are 130% of its net worth. It also means that a terrible year in insurance business is much more likely to wipe out equity at Fairfax. The same thing applies to investment results. In other words leverage cuts both ways. Hence Fairfax deserves much less premium to book value compared to Berkshire IMHO. At the end of the day, a bet on Fairfax is a bet on its insurance & investing acumen. Its ability to underwrite very well is critical due to its inherent leverage.

I haven't but Buffett said Berkshire achieved a "modest" total underwriting profit over the years. I take this to mean that somewhat small but positive cumulative profit over the 55 years. From 2021 AR: So far, this float has cost us less than nothing. Though we have experienced a number of years when insurance losses combined with operating expenses exceeded premiums, overall we have earned a modest 55-year profit from the underwriting activities that generated our float.

@Viking Thanks for the great posts about Fairfax & I hope all is well with you & family. Buffett always talked about float being "costless" (which can be interpreted as 100% CR) to Berkshire in his reports. Here is Warren: 2021 AR: One final thought about insurance: I believe that it is likely – but far from assured – that Berkshire’s float can be maintained without our incurring a long-term underwriting loss. I am certain, however, that there will be some years when we experience such losses, perhaps involving very large sums. 2020 AR: The massive sum held by Berkshire is likely to remain near its present level for many years and, on a cumulative basis, has been costless to us. That happy result, of course, could change – but, over time, I like our odds. 2016 AR: If our revolving float is both costless and long-enduring, which I believe it will be, the true value of this liability is dramatically less than the accounting liability. I also recall Buffett saying very similar things during the annual meetings. Berkshire actually earned a very modest underwriting profit over the years but their "goal" is to write business so that float costs them 0%. I do agree with you that Fairfax's bond portfolio is well managed and they are currently benefiting from staying very short in duration. Whether the current bond earnings can be thought of as "normalized", I am not sure as it is hard to predict the trajectory of interest rates. If one is in "higher for longer" camp, then of course yes at least for the next 5 years.

I haven't spent a lot of time valuing Fairfax but it seems to me that assuming 97% CR is part of "normalized earnings" is quite aggressive. Even at Berkshire, Buffett guides us to assume 100% CR for their world leading insurance businesses. Fairfax's insurance business is much improved (yes!) but I highly doubt it is as good as Berkshire's. And as most of us realize, the "normalized" return on bonds depends a lot on medium to long-term treasury bond yields which are somewhat unknown so prudence dictates that we should be somewhat conservative in estimating the LT "normalized" bond returns.

It is Warren's. Too big to be Ted/Todd's.

Quick exit from TSM is a surprise.

If history is any guide, Buffett sold the Allegheny portfolio after the deal closed.

I doubt very much 4.x% was an all-time high in 2-year treasury yield. Apart from that, how do you define a "plunge" in 2-year yield?

2- year treasury yield is already lower than the fed funds rate

Thanks for sharing. I was never a big fan of Berkshire's dalliances with 3G and I think Munger was a lot more suspicious of their methods than Buffett. Funny that these guys at 3G "idolized" neutron Jack. If you read the book Lights Out, Jack was doing borderline fraudulent things at GE pumping up its stock constantly by making up fake earnings from finance division & boosted the leverage dramatically. He also blew the whole succession thing with Immelt who was a big moron. No wonder then Lojas Americanas suffered even worse fate than GE. I think the results from 3G partnership were disappointing for Berkshire in the end.

Interesting. I guess these banks stocks were a big % of your portfolio for it to make such a big difference.

@dealraker For simplicity, let us assume you put $30K into the account in early 1991. That's roughy 40X in 32 years which comes to 12.2% CAGR which is in the same ballpark as your guess. What surprises me is that for the first 20 years, it returned 4x which comes to 7.2% CAGR; so it seems like your returns went up massively almost 10x in the last 12 years which comes to 21.1% CAGR during this time! Can you share any explanations for such stunning improvement in your investment results?

I found this part of the op-ed concerning for Fairfax India: the sort of regulatory, legal and administrative reforms that would reduce political risk are off the table. The author says that public sector is too incompetent, and no one else (other than Adani) in the private sector will step up because of risks in India. Doesn't seem like a great set up for Prem's investments in India if you agree with the op-ed. I also find it strange that the company is attacking the short seller. If it is really strong as it would like investors to believe, who cares if someone wants to short their stock or bonds? You only care if you need continuous access to capital markets for funding your projects. Buffett said at one the annual meetings that he didn't mind or care if people are short Berkshire stock. He also said IIRC that the very process of selling short creates automatic buyers (short covering) at a later date.

+1 Lubrizol wasn't great either. In retrospect, it would have been far better to have stepped on the buyback pedal a lot sooner than Buffett eventually did. But I think Allegheny will work out just fine as it is run by Joe Brandon.

I agree; there is zero chance Ajit is retiring. He is just like Warren & loves his job. BTW his place in Rye seems to be pretty nice: https://www.google.com/maps/place/14+Island+Dr,+Rye,+NY+10580/@40.9770033,-73.6595857,332m/data=!3m1!1e3!4m5!3m4!1s0x89c290a8daefd371:0x6f29816caba0e1cd!8m2!3d40.9766035!4d-73.6586337

No he works there and lives in Rye NY

It could just be another New Yorker thinking of moving to Florida. I am sure Ajit can run the insurance group from Miami just as well. Ajit owns a very nice apartment in New York city as well and he lives in Rye, NY. https://www.businessinsider.com/berkshire-hathaway-ajit-jain-one-beacon-court-14-million-new-apartment-2011-2

Ajit Jain bought a FL condo in 2022. Interesting news (sorry if it was already posted before): https://therealdeal.com/miami/2022/04/20/berkshire-hathaway-top-brass-pays-15m-for-flipped-fisher-island-condo/

"She will do far better for society if she is able to continue her inventing ways," he argued. It is horrible judgment on Sokol's part. I disagree with you regarding Lubrizol. Berkshire shareholders dodged a major bullet.

Sokol news: https://www.businessinsider.com/former-berkshire-executive-david-sokol-asks-leniency-elizabeth-holmes-sentencing-2022-11 WTF???

Because LBRDA is not identical to CHTR (even today). LBRDA acquired GCI (Alaskan Cable Company) through a complex maneuver involving two steps: Formation of GCI-Liberty first and then merging GCI-Liberty into Liberty Broadband. The first step involved paying a premium to market price of GCI to form GCI-Liberty.

If you are using LIFO accounting during inflationary times (reported profits are lower, taxes are lower), it looks like your working capital is going up even if unit volume stays flat. Buffett is saying you need to adjust for the effects of LIFO in that situation and not confuse with increase in working capital not related to LIFO. I think he is referring to a high turnover business where you hold the inventory for a relatively short period of time such as See's Candies or Costco?

He is also wrong about small addition to Apple (no change to Apple position).

Great thread by Bloomstran. He is however wrong about BAC sales in Q3. There were no sales of BAC stock accordign to my math.

Unlike @Spekulatius I am not necessarily a more intelligent investor . With that caveat, PE was very different in the 80s. First of the all, the public equities were trading at one of the lowest valuations ever, as the multi decade bull market was just about to begin. And the interest rates were at an all time high in 1982, and about to go on an epic downward trend over the coming decades to nearly 0% in 2020. PE industry barely existed in the early 80s, with most dealing in small caps. The total size of LBO funds was tiny. Almost everything is opposite of 80s today: the total size of PE industry is in trillions of dollars, interest rates heading higher, and market valuation elevated even after the drawdown this year. IMO PE is unlikely to do well over the next decade. I too would pick BRK, FFH over BAM for next 10 years.