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ECCO

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    2013 results are out

    in Fairfax Financial

    Posted

    There must be something I dont understand about those hedges.

     

    So the stock market goes up, FFH make money on their stock but lose that money because hedges lost value. So we are even.

     

    In 2 years, the stock market goes down as the stocks FFH own, but they make money on their hedges. We are even again.

     

    How do they expect to make money with that strategy? What is the trick I dont understand?

    WITH A LITTLE HELP FROM MY FRIENDS

    in General Discussion

    Posted

    I was wondering should single value investors try to pick women the way they do stocks?  Low cost, good cash flow, good capital allocation ... How many dates before you can ask to take a peak at the books?

     

    What about turnarounds and distressed opportunities? Lot of upside there.

     

    I dont like turnaround and distressed opportunities, much prefer a stock with a high ROE increasing dividend every year.

     

    Gio, send us more détails and pictures of that opportunitie, it will be easier for us to help you evaluate this stock.  ;)

     

     

    Micro caps

    in General Discussion

    Posted

    In Canada, there is Omni-Lite Industries Canada (OML, 0.85$) with a market cap of 10.3M$ and a book value of 17.7M$. I like the story. Last few quarters results has been average but things seems to get better. I have a small position in this stock.

    How to sell worthless options before expiry?

    in General Discussion

    Posted

    I have a few HP options with a strike price ($30) way above the current price and expiring in Jan 2013. I have put a market sell for the last 2 weeks on IB but it is not getting executed. I would sell it for $0 or even even a negative price if I can to take advantage of the tax loss but IB does not allow me put  any number below $0.01 if I do a limit order.

     

    Does anyone know of a way to get rid of these options in a way I can claim tax loss? This is a minor amount so I can let it expire and take the tax loss for 2013 but just wanted to see if there is any other way.

     

    Thanks

     

    Vinod

     

    Put a sell order at $0.01 and ask (pay) a friend to buy them.

    Fairfax down 8% this morning

    in Fairfax Financial

    Posted

    But, let’s say that FFH is worth 1,5BV (it is worth much more, especially if the ‘Kaboom’ moment Mr. Gundlach talked about is really in our future, but let’s keep it simple

     

    As to whether it's worth more than 1.5BV if a 'Kaboom' moment is coming,  Mr. Gundlach's fund can be invested in without any premium to book value whatsoever.

     

    The market is having trouble valuing FFH at a high premium to book value because the market itself is the one setting the value of the underlying portfolio investments -- it would be truly bizarre for it to say that JNJ is worth more in FFH's portfolio than outside of it. 

     

    Thus it's down to the operating income and growth assumptions of the insurance operations for the market to use as it's input for setting a PB multiple on the stock.

     

    ERICOPOLY,

    I think the market is extremely allergic to those “lumpy results” Mr. Watsa is used to referring to. FFH has not meaningfully increased BV per share for some time now. That’s why, in my humble opinion, the market is completely mispricing FFH today. Because lumpy results in a secular bear for stocks are the only sustainable results possible. My best guess is the market sooner or later will recognize that Mr. Watsa & Company are right, and that will be the moment when BV per share starts to rise again very quickly. Until then the market might not have patience, but FFH shareholders must have it.

     

    giofranchi

     

    Yes, BV will no doubt rise quickly when their investments rise quickly.  But that isn't in itself in any way warranting a high book value multiple.  It merely results in very high rates of compounding over time, which is just dandy anyhow.

     

    There are no investment funds compounding at a high rate that command a high multiple to their underlying portfolio investments.

     

    FFH by definition should always trade below intrinsic value, otherwise it would be overvalued.  That's the nature of gaining much of your intrinsic value by making shrewed equity investments.

     

    The place where they do command some kind of BV multiple would come from evaluating their insurance operations and their wholly owned non-insurance subs.  Figure out some sort of value of what the float+floatgrowth+underwriting results brings to the table, and then add that to the BV to get some sort of BV multiple.

     

    But the lumpy capital gains... I don't see them worth anything more than portfolio mark-to-market value.

     

    ERICOPOLY,

    I am well aware of the fact that almost nobody wants to hear about discounted valuations on this board… And I agree that they are not very useful. But let’s just make a simple exercise, and calculate the discounted value of equity (VOE) of FFH 20 years from now.

    To do it, I will use Professor Penman’s formula from his book “Accounting for Value”, page 68, Columbia Business School Publishing:

     

    Present value of equity = B0 + [(ROE1 – r) * B0] / (1 + r) + [(ROE2 – r) * B1] / (1 + r)2 +[(ROE3 – r) * B2] / (1 + r)3 + … + [(ROE20 – r) * B19] / (1 + r)20.

     

    Assumptions:

    B0 = book value today = $360,

    ROE1 = return on equity in year 1

    ROE2 = return on equity in year 2

    …

    ROE20 = return on equity in year 20

    r = interest rate

     

    Let’s say our required minimum return is 9%, so r = 9%. Let’s assume that ROE in year 1 and 2 will be equal to their stated goal of 15%, and then, from year 3 to year 20, it falls to 10% (just above the minimum required return).

     

    Under these assumptions we get to a present value of equity: VOE = $570.24, or 1.584 x B0.

     

    If we assume that a ROE = 15% will be sustained for the next 20 years, we get to a present value of equity: VOE = $1,112.39, or 3.09 x B0.

     

    If, instead of using our required minimum return, we choose to use FFH’s cost of capital as interest rate, so that r = 2,8% (until year end 2011 the weighted average cost of float for FFH since inception has been 2,8%), future ROEs just have to average 6,5% for the next 20 years, to get to a present value of equity that is 2 x B0.

     

    My intention here is not to put a precise number on VOE, but simply to argue that the market always has a very hard time valuing properly a machine that can compound capital at high rates of return for a very long time. That’s why I think that, even if FFH might not look “statistically” very cheap, right now it is, like Sir John Templeton was used to saying, a “true bargain”.

     

    Something that’s trading below book value is worth more dead than alive… Now, please read how Mr. Watsa answered to Mr. Shezad, when he asked if FFH shareholders had to expect other 7 lean years (Q3 2012 results conference call):

     

    “Yes, that was -- Shezad, that's a good question. And so the first thing, just to say you is we've always focused on the long-term and when we went through our 7 lean years, Shezad, we were turning around our company. We were turning around Crum & Forster and the -- take reinsurance and all of that, and that took sometime to turn it around. Today, our companies are in excellent position, they're underwriting-focused, they are well reserved, they've cut back in the soft markets and they are well- positioned to expand significantly at the right time. And then as we are expanding today, you're seeing that in Zenith, and you're seeing it in Crum & Forster, you're seeing it on Odyssey. And the Canadian market's always lag -- have lagged in the past and you'll see it in time in Canada. So underwriting operations are very well-positioned, and our investment philosophy and position -- they're always long term. So when we had credit default swaps in the past, it took a few years for it to work out and as you know, we made a lot of money. And so right now, it's very important not to reach for yield because if you do reach for yield, if you put money into the stock market at these prices, you could suffer permanent losses. We'll take temporary losses but we don't like taking permanent losses. So I don't think we'll be at a position where our results will be poor for a long period of time but you're right for the last year and a half, it hasn't been good. But our results for year ending 2011, for the 5 years, is among the best in the business and of course, for the 26 years ending 2011, it's better than anyone else in our industry. So we're focused on the long-term and we continue, we've always been focused on the long-term, and continue to be focused on doing well for our shareholders always.”

     

    It really doesn’t sound to me as something worth more dead than alive! :)

     

    giofranchi

     

     

    And so right now, it's very important not to reach for yield because if you do reach for yield, if you put money into the stock market at these prices, you could suffer permanent losses.

     

    Sorry, it might sounds like a stupid question for some of you that follow Prem and Fairfax more than I am, but how does Prem does see the market expensive? I guess it is not base on PE ratio, has PE market is not that high. Is he expect earnings to go down?

     

    Québécois!

    in General Discussion

    Posted

    I am from Laval myself

     

    Any members form the "disciples de Buffet" board from the old  Webfin?

     

    Salut MarcusWelby, on a deja pris une biere ensemble dans le temps du webfin. Mon nom etait eddyc je crois ou peut etre ecco. Plusieurs ex membre du webfin sont maintenant sur le forum du site de philippe soit l entrepreneur boursiier.

     

    I have sold a few BTMC this spring, do you still have your full position?

    America Debt Free by the End of the Decade

    in General Discussion

    Posted

    When things are going well, people think they'll go well forever, and when they are going badly, people think they'll go badly forever.

     

    Liberty, that's exactly what many financial analyst are doing...when a stock goes up they expect it to keep going up and increase their target, and when the stock goes down it should keep going down.

    Shorting ideas

    in General Discussion

    Posted

    CRM should be an excellent short and eventually this company will be hated by the Street. AMZN is the same thing or growth at any cost and into any direction. The game will stop once people starts to truly question if they will ever make money. Both companies keep telling us that they need to gain market share and that eventually they will suddenly stop spending and profits will surge. This is not how companies or humans operate. When sales growth or demand slows it will be because competition will have increased or saturation has been reached. Either way, that is not when gross margin increases. Even if they cut SG&A and marketing at that point, the best they will do is to maintain current profits.

     

    There was a nasty article in the WSJ last night about CRM lack of profitability yet the stock is still holding strong. This morning Piper Jaffray came out with strong support saying that the backlog would be strong in H2. Their price target is $207 or a $29 billion market cap. The analysts are the main problem with all these momentum stocks. They keep increasing price targets, they never look at profits, only sales growth matters. The way they act, it almost seems that they are pumping the stocks for the benefit of someone else who is holding or trying to create short squeezes.

     

     

    Cardboard, you will find the answer when looking at who own the stock.  Yahoo said that 9% is own by insiders and 99% by intitutionnal and mutual fund for a total of 108%. Now, who are analysts best client... 

     

     

    Have you been selling into the rally? What companies are you waiting on?

    in General Discussion

    Posted

    I have a short list of companies to buy at the right price. UPS, RLI, MCD, BAC at $7.50

     

    I think BAC at $8 is cheap, but I think it will trade down with the market. I think the chances of this rally continuing for another 3 months with the Eurozone Central Bank resuming debt crisis talks this week and the fiscal cliff resolution relying on a lame duck congress is less than 50%. I still own all of my BAC warrants but selling Sept. calls on the common for .50 today made some sense to me with the S&P at a four year high and the previously mentioned negative catalysts. 

     

    Respectfully, I think its stupid to wait to buy a stock at 7.50$ when you think the stock is cheap at 8.00$. You might be right on the stock could it 7.50$, but what if it doesnt and goes to 20$?

     

    On one side you could save 10% and on the other side you could miss a 150% gain or more. Buffett has make that mistake with Walmart and it cost him a few billions $. 

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