MMM20

Isn’t the normal volume in Fairfax nowadays much lower than Berkshire’s was at that time? I wonder if you’re mostly right but there’s still a bigger move coming closer to the date, similar to TPL ahead of its addition to the S&P 500 recently. But I won’t be surprised either way.

Whoa, I'm newer here and didn't know this - which exact years and what were the bets?

This is the best argument against extreme concentration in best ideas.

I was also correct that something shady was going on. Unless the timing of a spike - mid-day ahead of the announcement after the close - was pure coincidence

Similar perspective to https://frank-k-martin.com/2024/11/18/cash-as-trash-or-king/ Buffett’s “not-so-secret weapon,” as noted in the 2023 annual letter excerpt above, is to sell on good news so you have cash to buy on bad news. Only a tiny fraction of investors have the willpower to walk away from the table when they have a hot hand.

Cost of capital headed down across the board?

With respect to all the Canadians here (I love your country!), Occam's razor = something shady and borderline illegal involving the hedge fund community up there. Maybe I'm wrong about exactly what it is.

Let me be the first to wildly speculate that someone's leaking the news about index inclusion and funds are buying the prefs to get around insider trading laws.

Maybe a related question for anyone who follows BRK and MKL too. At what valuations (on current book or eps) would you be indifferent between the three?

It's hard to separate the concentration / asset allocation question from the sell decision. Some of us think of our FFH investment as a "core" position and a "tactical" component that has been big for the past couple years. I sold MKL (and index funds) to load up on FFH in 2021. Now that the expected return differential between the two seems less extreme (and Gayner has been buying a bit recently), I'm starting to think about swapping some back. Maybe any pop on index inclusion would be a reasonable opportunity to do so. I wouldn't be doing this if I didn't still have that big "tactical" chunk of FFH and very little in the way of core / plain vanilla / index-ish US equities. FFH is still trading at less than half of intrinsic value though and would still be my biggest position and ~3-4x what I'd allocate to MKL.

In your example, if home values are -50%, you can hand the keys to the bank and only lose your 3% down payment. Fairfax has always been on the hook for the full notional amount of the swaps, right? I think you're technically correct but if we're trying to evaluate the capital allocation decision across scenarios it's conceptually/economically a different story.

I'll have to think harder about this. I just don't see it as functionally equivalent to a call option... maybe a call option with an open-ended duration where you're on the hook for the full amount of the underlying change if the stock goes -100% against you. In other words, just like buying the stock, but if a bank lent you almost 100% of the capital and needed to be paid back either way. If you calculate the IRR off FFH's initial outlay, you basically get an infinite IRR - that can't be right in general. It only looks like that in this case b/c the stock basically went straight up. Were they not truly risking the full notional amount of the swaps? Maybe I'm missing something. Thanks!

I mean, sure, but there’s no free lunch. Wasn’t the whole point that it was economically equivalent to buying their own stock? They didn’t have enough free cash on hand at the time so they found a way around it. Seems like the best way to think about the ROIC is to use the full notional amount in the denominator. And then account for the extra costs like the borrowing costs. Maybe I’m missing something?

Why not treat it like a full outlay (ie buyback) at t0 and just incorporate some borrowing cost?

Here's Cormark playing devil's advocate, or something like that.