shalab

I want to throw in a few that nobody has mentioned yet ;D - coming as a public company near you... Gio holdings Parsad Financial and who knows, may be even Shalab and family ;D ;D

This is one way to do it. The other would be to issue stock in canadian dollars ( or u.s dollars ) to retire debt to bring the leverage down. Improves book value/share gains. They are getting a tail wind from the interest rate changes and if the unemployment keeps going down in the U.S., the low interest rates won't last forever. However, I don't think Prem will do the above as he said in the conf call, he( and his family) is the controlling shareholder.

I would say look at the conf call transcript Gio posted and the quarterly report. - gives color on why they sold stock in Q4 2013 - mark to market gains in bonds big reason for book value increase - the hedges decreased in comparison to equity exposure - bought more cpi linked derivatives in Q1 2014 ( US and Europe )

Morning star seems to be better - has links to some videos http://news.morningstar.com/articlenet/article.aspx?id=645622

Gio - I bought MKL last year after one of your threads about insurance - it is doing well, thank you ;D

Houbolt was covered in "Of permanent value, the story of Warren Buffett..." - he has passed away. http://en.wikipedia.org/wiki/John_Houbolt

1. Why change the 5 year rolling period comparison changed to cycle for 2013? The 5 year comparison to SP500 and other insurance companies is in page 108 of the annual report. ( I got mine this week )

Thanks for the clarification - but it seems most of FFH insurance operations are in the U.S and will be governed by U.S insurance regulators? Thanks for the meeting notes. Common share holder equity is about $7 billion and Stock/Preferred stock investments are about $5 billion. So I cannot see how even a 50% loss on equity/preferred stock would wipe out Fairfax. It does not make sense to consider a loss of 25% on the entire investment portfolio consisting of stocks, bonds, cash. The hedges only protect the equity portion. Vinod There were two points that clarified this hedging issue for me, one point at the Railcar event, and one during the shareholder dinner. At the Railcar one of the FFH guys mentioned that the Canadian regulators would at most give 50% credit to their equity investments. This is a major issue, so they have two choices. They can invest in bonds and cash and get full credit, or hedge the equity to get full credit. They could potentially also raise equity by selling shares, although I don't consider that much of an option. So in order to satisfy the regulators they need to be protected against a lost. At some point the market will fall, it's not a matter of if, but of when. When the market falls they can dump the hedges and make more investments without a hedge. The math on this works because they're able to double down on investments and with a 50% regulatory penalty they don't lose any ground. At the dinner Paul made a few comments reinforcing this but also went a step further. It's almost as if there are two things going on here. The team is investing as they always have, they are generating the types of returns they want. They're very confident in the investments they have now, that Greek REIT, restaurants etc. It's a timing issue, they expect the market to fall before these investments are realized. And to be able to invest at all they need to show to regulators that their capital won't be wiped out. So they are forced to hedge. The hedge protects them in a downdraft, but it's almost independent of the underlying investments. Someone quoted Prem as saying that protecting capital is the most important issue, and that AIG took decades to build billions in equity that was wiped out in a year. Remember that Fairfax is first and foremost an insurance company. They are not a hedge fund, or a mutual fund. All of their activities support their insurance, and this is how regulators view them as well. So why haven't they ever called this out explicitly? It doesn't seem in good taste to call out regulators. But I think it's even simpler then that. I think that Prem and his team take this for granted. They are an insurance company, they deal with regulators and capital issues all the time. This is the lens they think in, I think they presume that investors understand this as well.

Nicely done - thanks for sharing.

Thanks Sanjeev - no wonder they say FFH blood flows in your veins ;D. May be a couple more hard questions to Prem :) 5. How does Prem manage his time with FFH, chancellor of University of Montreal and BBRY 6. Where does he see BBRY a year from now, three years from now and 5 years from now? 7. Is tech FFH's circle of competence and will they make more tech investments in the future 8. With India currency devaluation and persistent high inflation - what is the impact on Thomas Cook 9. Devaluation theory - they are playing both sides of the equation - why?. e.g;, invest in Greece, Ireland etc. at the same time take deflation/CPI hedges in the U.S. 10. While FFH is doing a good job cloning BRK annual meeting format - why is it held in the middle of the week? (typically coinciding with spring break) I can give a pretty good idea for a few of these: 1. Pretty obvious that succession planning started sooner at Fairfax than Berkshire. While the old guard is still in place, Andy Barnard's position as chief of insurance and Paul Rivett's position of chief of pretty much anything outside of insurance, suggests that this may be a Tony Nicely/Lou Simpson like division of labor, with quality people working under each. Andy would watch over all insurance subs, and Paul would lead Hamblin-Watsa and non-insurance businesses. I would not be surprised to see a Watsa installed as a figurehead Chairman, not unlike Howard Buffett, to oversee and make sure the culture at Fairfax remains intact. 3. Fairfax has not invested in Dakshana. Prem's personal foundation, The Sixty-Three Corporation, invested the proceeds in Dakshana. Still a good question...did Fairfax invest in the Dhandho raise? 4. Core group is made up of I believe six committee members and Prem, plus one other person (Sam, Roger, Brian, Chandran, Paul, Wade and Prem, plus one that shall remain unnamed). Francis Burke is also on the committee, but I don't think she looks after any capital directly, and focuses on Fairfax's trading. They are each allocated several hundred million plus. Very large investments get the final call by Prem. Analysts also get a portfolio to manage, but much smaller. You've got some of the smartest guys in the business working there together. Going to be hard to replace them...not simply on skill, but their ability to work as a team. Cheers!

From Borsheim's website: http://borsheimsbrk.com/events Meeting Credentials Borsheims does not issue meeting credentials. There will be a Shareholder Services Kiosk in the lobby of the CenturyLink Center for shareholders who have made prior arrangements to pick them up there. Any questions or problems that shareholders may have regarding the weekend and/or their meeting credentials can be handled at the Kiosk. Proof of ownership and photo identification are required before credentials will be issued.

This is a great book on Berkshire and I second this book. This is by far the "best" book on Buffett and Berkshire in my opinion. Thank you Marlin for your post.

Buffett, Gilbert and Yahoo! win ;D http://money.cnn.com/2014/03/22/news/companies/ncaa-brackets-buffett/index.html?source=cnn_bin

A transcript would be good if not a video itself. Same for Fairfax AGM and Sanjeev AGM.

I will answer this one! ;D Today FFH’s equity is $7.2 billion. If it compounds at 15% for the next 10 years, its equity will become $28.8 billion. If it compounds at 15% for the next 20 years, its equity will become $115.2 billion. At that point, if it sells for 1.4 x BV, its capitalization will be 1.4 x 115.2 = $161.3 billion. Little more than half what BRK is selling for today. Besides, at that time I guess there will be many trillion dollar companies (markets will be much larger)… Therefore, no, I don’t think size will be a serious obstacle to compound at 15% annual going forward. :) Gio Gio - I would believe you if you were Prem ;D. The hairy guy with snake skin belt may be you afterall - masquerading as Gio while your real name is Prem ;D ;D

I wont be at the dinner or at AGM but hopefully someone can compile a Q/A for AGM and Sanjeev's events. 1. Since Prem is now officially a senior(?), what does succession at FFH looks like? Is it Prem's family or something else? 2. Is FFH still promising 15% annualized returns or is size a barrier? This one if for you Gio :-). 3. Is FFH investing in Dhandho holdings? (since it has invested in Dakshana ) 4. What is size of HW and how much does each portfolio manager manage? (is it decision by committee? )

Some data on January U.S Trade: Exports to China: Up by 10% -> from a relatively smaller base Imports from China: Up by 2.6% Exports to Japan: Up Imports from Japan: Down Exports to India: Down Imports from India: Up some 15% Exports to Korea: Up Imports from Korea: Up So - nothing alarming yet - though things may change moving forward.

I am sure this hairy guy with dhandho shirt will get a lot of date requests based on his photo ;) ;D. My guess is that it is Sanjeev or Alnesh.

SD, you explained FFH hedging very clearly - thank you! PW family is a control investor in FFH with PW voting for the family....

This site does its job - thank you Sanjeev for hosting it! MMM ( money mustache at http://www.mrmoneymustache.com/ ) also uses the same forum. Looks like the infrastructure for the site is maintained by simple machines ( http://www.simplemachines.org/ ) and looks like it is a non profit. I also think valueinv adds value. That said, moderating this site is a time sync - especially of a high caliber money manager like Sanjeev. cheers!

If anyone gets "macro", it is Ray and his team (acknowledged by Paul Volcker as being better than the Fed before the crisis) - here he is on the U.S economy. http://www.businessweek.com/articles/2014-02-06/charlie-rose-talks-to-bridgewaters-ray-dalio?campaign_id=yhoo And how does the economic picture in the U.S. look to you now? The U.S. economy is in the middle of a short-term debt cycle. It’s in one of those periods when we would think of them as fairly boring years. If I said to you, “What were 2004 to 2006 like?” You don’t remember. They don’t stick out. They didn’t have tight monetary policies. They didn’t have loose monetary policies. Now, short-term interest-rate return is about 1 percent. The expected return on bonds is about 3 percent. Equities at about 4 percent. It’s in the middle of a business cycle within a very long-term debt cycle. The high level of the debt cycle means it has a sensitivity to interest rates. A tightening that’s too fast would cause the economy to go into a difficult situation. That’s where the U.S. is.

I agree. That’s why I have said that imo to have a cash reserve, and to make it grow or shrink strategically over time, and to hedge equity exposure are two very different things. Even accounting for exceptional mark to market bond losses in 2013 and a 30% cash position, without the losses due to equity hedges FFH would have posted very satisfactory results! Gio HW analysis group (~50 analysts ) has always used hedging - they state equity results with hedging. They have been enormously successful using that strategy in the past with the last four years being an exception. I would even say hedging ( or macro calls ) is their core competency. Therefore one shouldnt compare FFH (FRFHF) with Berkshire, MKL etc. FRFHF can have a place in one's portfolio ( Gio's logic ) just because it uses a different strategy. However, as PW himself has indicated, FFH will go down in a bear market - he just hopes it won't be as much as the index. Berkshire never had this issue as their book value will drop less than the market and they can deploy their hoard of cash at attractive prices if such an event occurs.

I have an inkling that if that Vice Chairman title has anyone on it I am thinking Sanjeev or Alnesh...

It would be interesting to see if people have still money allocated to FFH and if so how much of their portfolio is in it.

Wanted to run this by the board - after the looking at the recent turn by Gad in taking over PGNT and SEDN. Advantages: - Can get cash flows from the business - Improves the ability of the person gaining control to get a permanent job ( and salary ) - If moneys are allocated properly, there is value to the remaining shareholders as well. Disadvantages: - This is from Buffett, he has said that buying Berkshire was a mistake - the below average business required a lot more cash to keep going and potentially decreased Buffett investment returns by a few points.