ERICOPOLY

Easy -- I am getting taxed at about 52% on the sale of my warrants. So effectively, the puts are on sale for half off. And what if BAC keeps rising to $15? So the decision to go to cash is not so simple. Good point about the taxes. My situation is different than yours. I still have BAC common, also some MSFT and SD. I sold all my BAC calls when they spiked recently. I don't think it will act like a coiled spring as much as it did when it was below, say, $10. You are right about it not being a coiled spring anymore. I think BAC will earn (the earnings per share) more than those puts cost me. Then as the stock rises, it gets cheaper to roll those $12 puts along and thus the earnings easily overpower the cost of the puts. Then it trades at a multiple to book, more tailwind. This might take several years to play out. Meanwhile, I have FFH plodding along. Perhaps something exciting will happen. I like it. Not for everyone, but I like it. Could hold them both for the long term, picking up a few extra percent per year. Nice tax losses accumulating as well as those puts get rolled along. It seems funny to me that one of them is under tangible book and will be able to earn 13%-15% on tangible equity, and the other trades at only 3% premium to book. Both could see a 50% pop in how they are priced (not counting earnings) in let's say, 5 years time. Now that could be sweet! It's like I've created a 50 cent dollar from rubbing two 70 cent dollars together. In a sense. Not quite, but a little bit like that. Anyways, the downside seems not too bad given that the one unhedged is the one that itself is armed to the teeth with hedges.

It seems to me that the high debt issuances of the US Treasury would crowd out the private sector investment if there wasn't a new buyer stepping forward willing to snap up every new issue. That new buyer would be the Fed. So in a sense it keeps the available supply of risk-free debt issuance in balance with the risk assets already out there. That keeps prices from collapsing for risk assets. So QE is sort of the prevention of collapse due to excessive US Treasury issuance, rather than propping up assets that otherwise would collapse on their own (outside of US Treasury issuance). I can't think at the moment of how they unwind it though. I guess over time interest payments (and bond maturities) flowing from the Treasury to the Fed can be used to gradually reverse the Fed's money printing.

Easy -- I am getting taxed at about 52% on the sale of my warrants. So effectively, the puts are on sale for half off. And what if BAC keeps rising to $15? So the decision to go to cash is not so simple.

I don't know what the phrase is when they are out-of-the-money like the $15s are. Maybe it's still "notional value" -- not sure. I picked up the term from reading the Fairfax annual reports. But just so you understand me, I bought the $100 strike IWM puts (Jan 2014 expiry). For every 10 contracts I bought, it hedges $90,110 notional value because the index closed at $90.11.

I hedged the BAC with $12 puts 2014 in my taxable. In my RothIRA, I bought the BAC $12 2014 calls. That freed up my buying power to head back into FFH. Worst case, FFH declines and I also lose the value of the BAC put. I'm willing to eat that additional loss because I believe in the end BAC will turn out really well -- I just may have to roll calls along for a while. I also today hedged 20% of notional with Russell 2000 puts. This leaves me with: 100% notional long BAC (85% hedged at $12 strike, and 15% hedged at $10 strike) 87% notional long FFH 20% notional short IWM (Russell 2000) I didn't do this as a reaction to the markets today. I did this after meeting another board member yesterday. I talked about what I was doing and went home firmly convinced that it was still too risky. So I planned to move the majority of the BAC puts to $12 and bought more FFH. Then I decided to add the Russell 2000 puts. I don't know, I just suddenly got extremely bearish. Normally, I'm the most optimistic. But I thought about how I'm usually the last to lose my nerve during bull markets, so I used that logic to convince myself that if I'm getting this nervous then it's time to do more than just worry about it.

I'm normally extremely optimistic and bullish. However I feel extremely cautious right now. I have now hedged 85% of my BAC exposure at $12 strike, 2014 expiry. The other 15% is hedged at $10 (2015). I have replaced the downside with FFH. I now have more FFH exposure (in terms of number of shares) than my peak exposure in 2006! Like most people, I feel FFH will also fall during a big crash (just like last time). However, I'm just too much of an optimist to not be invested. Cash burns a hole in my pocket.

Yes. I was trying to model their returns so I had noted down this % way back in 2011 and here it goes: Equities/Shareholders Equity Year 40% 2002 47% 2003 59% 2004 76% 2005 77% 2006 62% 2007 77% 2008 64% 2009 47% 2010 Vinod Thanks Vinod. I knew somebody had it already organized.

Fairfax's common stock portfolio (as of last report) is almost exactly 50% of shareholder's equity. Have they ever taken this percentage meaningfully higher? Or have they ever indicated at what level they consider to be "maxed out"?

My firm got incorporated in 2004, and I started investing its fcf in 2006. :) giofranchi “As time goes on I get more and more convinced that the right method in investment is to put fairly large sums into enterprises which one thinks one knows something about and in the management of which one thoroughly believes. It is a mistake to think that one limits one’s risk by spreading too much between enterprises about which one knows little and has no reason for special confidence. One’s knowledge and experience is definitely limited and there are seldom more than two or three enterprises at any given time which I personally feel myself entitled to put full confidence.” - John Maynard Keynes giofranchi, Does Italy have any rules similar to our Personal Holding Company tax on undistributed passive profits? In other words, can you just retain all profits within your corporation and invest them without ever yourself paying a dividend?

The best trade at the time was buying up the notes of the indebted US states that were trading at 30 cents on the dollar. They were paid off in full when Alexander Hamilton floated the US backed bonds. I read Alexander Hamilton by Ron Chernow -- I believe it was 30 cents on the dollar (working from memory). Great book if you haven't read it. I remember Abigail Adams wanted to invest in those notes, but her husband, John Adams, wouldn't have it because the were "Adamses" and they only invested in land. So you know who the brains of the family was.

Summary: He says the US will return to high rates of growth (unlike Grantham). But first, there will be 5 more years of consumer de-levering. On the whole that sounds very good -- we need that high growth to shrink the government debt relative to GDP. So, just a couple more years! Then another one, and then just a couple more! Sounds like we're almost there given that this whole thing began when the 2000 bubble burst nearly 12-13 years ago. We are almost (just two more years) 83% of the way through! ::) (in two years we will be 15 years through this out of 18 total years beginning in year 2000)

Sanjeev needs a nom de guerre. "famous and talented investors such as Prem Watsa (CEO of Fairfax Financials, "The Warren Buffett of the North") and Sanjeev Parsad (Founder of Corner Market Capital, "The Hoover of Vancouver") to invest in the"

What % of your portfolio are you targeting? Hope that your midas touch continues for the rest of us patient FFH holders It's roughly 50% of net worth. This is partly motivated by the fact that California makes it cost prohibitive to dance in and out of holdings. So I hope I just hold this for a long time in my taxable account. I still have a lot of BAC, but not as much and it's all hedged. Whoa man! I can be a bit dense here but are you saying that if BAC went to $0 that your networth wouldn't change (beyond the costs of the hedges)? I'm just a bit shocked is all. :P It would be a bit worse than that because 40% of my BAC is hedged at $12 strike and the rest is hedged at $10. I was really only talking about the portion that is paired up with the FFH in the taxable account, and that's the part that is hedged at $12 strike. See, in the taxable account FFH only needs to beat the after-tax cost of leverage. The FFH will continue to defer capital gains for hopefully decades, and the BAC puts will hopefully expire worthless. This gives me valuable tax losses given the insane capital gains tax rates for Californians. And besides, I expect FFH will likely beat the after-tax cost of leverage that I'm incurring with BAC -- roughly a 5% hurdle rate for 2013 given the short-term cap gains I took on those BAC warrants and the roughly 50% tax rate. However if the markets go to hell in a handbasket both FFH and BAC could be down for a while. Just like FFH dropped in 2008 and 2009. But I reason the situation will be good for the rate of value growth in FFH if I sit tight, and certainly it will be good for rolling the BAC puts along.

Plus I like the break from responsibility. I can behave like a child and do some backseat driving, like pointing out that they don't invest in Berkshire when it's cheap. But then somebody pointed out that there may be a conflict of interest in their making an investment in a competitor. So I learned something too.

This is from the annual report (pg. 97). The exposure to the largest single issuer of common stock held at Dec 31, 2012 was $604.7 (million), which represented 2.3% of the total investment portfolio. Hardly something to lose sleep over and thus I wouldn't consider them "heavily into RIMM". I would add that it's not like BBRY is in rough shape at all. They have nearly $3 billion in cash and no debt. They have higher gross margins that AAPL. The smartphone market is still in it's infancy. BBRY just released new products. Prem presents his rationale quite clearly in the annual report. Thanks for looking it up. I prefer to view it as a percentage of book value, but even then it's not that bad. For one thing it will take a while before it goes to zero (if it does), and over that time they get income from bonds to fill in the hole. Plus, any 100% loss isn't really a 100% economic loss due to the tax deduction. Last, if RIMM goes to zero it will be their mistake and not mine ;D That's why people pay others to make their mistakes for them.

What % of your portfolio are you targeting? Hope that your midas touch continues for the rest of us patient FFH holders It's roughly 50% of net worth. This is partly motivated by the fact that California makes it cost prohibitive to dance in and out of holdings. So I hope I just hold this for a long time in my taxable account. I still have a lot of BAC, but not as much and it's all hedged. So this kind of leverage I find interesting -- things turn out well, I'll keep making money from BAC and FFH at the same time. Things turn out poorly, FFH will be booking big gains and hopefully BAC will still make money. If not, hopefully the big FFH gains cancel out the cost of the BAC hedges.

It's nice to hear that things are going well. I've been buying (and still buying) FFH. I feel like with the markets this high the hedges can't be that much of a drag anymore. I'm buying the stock today for the same price I sold it for 2 years ago! The deflation hedges are already practically worthless. So it's like, everything about the company that has been killing returns for two years is now probably substantially in the past.

Or perhaps the Treasury department has it's proposal, but perhaps Obama is proposing something that goes beyond what the Treasury proposes. Maybe that's because the White House is the political arm of the Treasury, and first Obama wants to scare you (to get you anchored to communism), and then in a "grand bargain" reduce his plan down to merely the Treasury's proposal.

He should start a holding company, not a fund. 0% tax by owning Berkshire till death (which is what you do if you are a billionaire, because you aren't going to spend the money). Owners of Berkshire enjoy dividends from equities taxed at 14.5% rate, dividends from subsidiaries taxed at 0% rate, and capital gains taxed at 28% (under Obama's proposal). I know you are thinking that 28% on capital gains is no sweet deal, but considering that California has a 13% capital gains tax rate on top of the 20% Federal capital gains tax rate as well as the roughly 5% Obamacare/medicare tax, then 28% seems like a pretty sweet deal after all!

It looks like IRAs can be rolled into variable annuities -- hopefully this is a loophole that can be exploited: https://investor.vanguard.com/what-we-offer/annuities/save-for-retirement quoting: In most instances, your earnings can accumulate longer because there are no requirements for withdrawals. Note: Required minimum distributions could still apply if you roll over assets from a qualified retirement plan or IRA.

This is all so silly anyhow. There is no limit on variable annuities contributions. So why go after IRAs? Here, for example, is Vanguard's variable annuities page: https://investor.vanguard.com/what-we-offer/annuities/save-for-retirement Notice the words save for retirement in that URL? How deferred annuities work A deferred annuity can be a smart way to build extra savings for retirement. You can put more money away than you can with other retirement accounts. In most instances, your earnings can accumulate longer because there are no requirements for withdrawals. Note: Required minimum distributions could still apply if you roll over assets from a qualified retirement plan or IRA. You can add to your deferred annuity and withdraw assets from it at any time.* You can convert the annuity assets into periodic payments—or simply make withdrawals as you wish. And then look at all the investment options -- doesn't this sound almost exactly like an IRA?: https://personal.vanguard.com/us/funds/annuities/variable

That's not quite what we're doing. We're pulling the flowers... I'm not going to say to water the weeds until I know where that specific money is going, but I do know for sure he's pulling the flowers. Only the best performing accounts are being culled. It's not like I'm some tycoon who stashed millions of pre-tax earnings aside. I made 30,000% in seven years (all the gains came in the last 7). I put 12,000 aside on average each year just like plenty of others could have done in the middle class. Obama says he is doing this for the middle class. But taking away hope? This is one of the only avenues for class mobility -- passive investing to get yourself out of your day job. And by getting myself out of the job at age 34, that enabled another person to take my job. Else, he'd be unemployed and on benefits. I have benefitted that guy enormously.

Actually, this country suffers from not enough people doing what they want to do. We wind up taking jobs that we don't like, simply because they pay better. See Munger's comments on the engineers working at hedge funds. So I have the idea of just providing matching income to my children if they pursue their goals. So if they want to pursue a career in teaching, they'll get a matching income (up to a certain percentage) from the trust. That way society benefits from one more passionate science teacher and one less useless money fund manager. Of course, I could just fund teachers directly but I have a biological itch to scratch (looking after my own). But I can do that I think while society is also benefitting from them pursuing their dreams. The criteria for getting any money is earned income. Gambling winnings not included.

I can't tell what they are planning. I pay a $1.5m larger tax bill next year (that's not what I'm forced to withdraw, that's what my income tax bill will be) if it's the worst case. Or I pay a $0 tax bill if it's the best case (contribution limits only). It's a tragedy for the tax payer though -- I'm pretty sure I can beat the cost at which the government borrows money. All of the gains I make in the Roth IRA going forward would otherwise the subject to the 40% estate tax. Same with Mitt Romney. It's a public private partnership. Obama is liquidating the largest partnerships that the US Treasury has an interest in. These tend to be the ones with investors who seem to be relatively good (or else the account just magically became large?). So the tax burden of the general tax-paying public just went up. Now that's assuming I take a big chunk of the money and use it to start reducing my taxable estate (gifts for kids crummy trusts'). And that's exactly what I intend to do. But yes, I'll get rich slower. That might make Obama satisfied, but it means more tax burden for the general public so his is a hollow victory.

May be. See page 18 in the proposal: http://www.whitehouse.gov/sites/default/files/omb/budget/fy2014/assets/strengthening.pdf "The Budget would limit an individual’s total balance across tax-preferred accounts to an amount sufficient to finance an annuity of not more than $205,000 per year in retirement, or about $3 million for someone retiring in 2013." Remember the tech bubble when stock market was 2x and then suddenly halved again? Surely Obama realizes that if you've got $3m, and then it suddenly doubles, it can suddenly be worth 50% again. But along the way you were forced to liquidate 1/2 of your retirement funds. Now after the crash you have $1.5m in the account, and your dividend income (and annuity purchasing power) is halved. This makes no sense. Or people with $1.5m will suddenly have $3m in their account, won't be able to contribute, but then the market will crash and it will be $1.5m again. Obama must have learned something about bubbles by now.