Munger_Disciple

That's not the point. Mobius should have seen the writing on the CCP wall and get the hell out of there at least a couple of years back. Now he is going to get what her deserves, which is nothing.

This guy is an idiot. The writing has been on the wall for awhile starting with required "social contributions" by tech companies & the disappearance of Jack Ma a couple of years back.

Wow! ChatGPT's article is a lot better than the one in Toronto Star. I think we have proved that AI >>> Most human intelligence

LOL At first I thought it was satire but then realized it wasn't sadly. This is probably the worst article on Berkshire I have ever read.

Great stuff @gfp! Thanks

Thanks @gfp! I have looked at Fairfax for a while and never fully jumped in the pond (thought got my feet slightly wet a few times). The thing that worries me most (at a high level) is the amount of premiums (net) they write annually relative to net worth (and hence float relative to net worth). I owned Berkshire for a long time (20+ years) and I don't think Berkshire ever had that kind of leverage in insurance business even when they were tiny. But I suppose one could size the position accordingly.

@gfp Interesting. A couple of questions: Do you hold Fairfax in a tax deferred account? And are you concerned about Fairfax's leverage (especially float relative to net worth) at all? Seems like their capital structure is very un-Berkshire like.

https://www.espn.com/nba/story/_/id/35746705/sources-marc-lasry-agrees-sell-bucks-haslams-35b Probably the reason Pilot deal was completed in January 2023.

I also missed a 10,000 ft overview of the important business segments though I did read the management discussion and analysis section. I think it is a good idea for Buffett to ask Ajit & Greg to include a 2-3 page summary of their businesses, similar to what Buffett used to do and include these as a part of the annual letter.

I missed seeing a summary of large equity holdings in this year's letter. I am not sure why it was dropped by Buffett. I think It is the first time it was omitted since at least 1977. Given the very large size of equity holdings relative to shareholder equity I think it is a significant omission.

I am not GFP, but here is your answer: "This amount is based on a contractual agreement that is dependent on Pilot’s earnings for 2022 and its net debt at the end of 2022, and is subject to postclosing adjustments following the completion of Pilot’s independent public accountant’s audit of its 2022 financial statements." The price was based on a formula that was agreed to beforehand.

Thanks for the excellent post!

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.