ERICOPOLY

A week or two ago some people were expecting ORH to outperform FFH in Q2. Scoreboard for Q2: ORH book +18.5% FFH book +23.5%

What does this "fair value" of ICICI mean? A or B? A: Is it what they believe the stock would trade for in today's market given present market valuations? B: Is it like the "FAIR" value they paid of 1.3x for NB? If B, then I fear that you might as well count all of their common stocks at "FAIR" value, which probably puts BVPS well over $400. But that's kind of like putting the cart before the horse. If A, then it's perfectly fine to count it towards BV. Fair value per fas 157 - the price at which it would sell for today, in todays market. For most traded securities, fair value means current market price. If you own more than 20%, it means cost or book value, adjusted for your proportionate ownership. Its carried on their books as an equity investment for accounting purposes. This means it is not marketed to market value. Given the high growth in india, it is worth significantly more than this if they were to sell it today. That's what I was hoping for. Thanks. At today's close of $290 it's still valued at 82.8% of estimated present book per your estimate.

What does this "fair value" of ICICI mean? A or B? A: Is it what they believe the stock would trade for in today's market given present market valuations? B: Is it like the "FAIR" value they paid of 1.3x for NB? If B, then I fear that you might as well count all of their common stocks at "FAIR" value, which probably puts BVPS well over $400. But that's kind of like putting the cart before the horse. If A, then it's perfectly fine to count it towards BV.

This is very welcome news. Book value is up 17% YTD (from a base of $270 after paying the $8 dividend). Let YTD = June 30th.

FFH is the only stock I've found where the price of volatility in the LEAPs today is largely the same as back in March (slightly lower but it could be explained by time decay). In March, FFH's volatility premium was the same as that of JNJ or KO. It was 20% strike for at-the-money then, and would probably be so today were it not for time decay (it's 18.6% today).

Yes, but it depends on when it moves up to the "break even" point. Let's say that I paid $50 for the Jan 2011 $250 strike FFH call 3 weeks ago, and yes, if the stock is only at $300 in 2011 at expiration then the option holder makes no money. However, yesterday the option holder could have written the 2011 $300 strike call for $50. In that situation, the gain is 100% in 2011 if the stock is still at $300. No tax is paid until 2011, and you have a return of capital of $50 which can be reinvested today to boost that return beyond 100%. Anyways, that's if you are concerned about taxation. I have to keep a lid on my gains this year because I'm doing another Roth IRA conversion. So I have a different perspective.

Tis the season for price firming I guess. Last week I got a phone call that my family health insurance premiums have been raised by $70 per month. The upside is that the amount I spend on insurance is dwarfed by what can be achieved through my ownership in Fairfax.

You don't necessarily lose when competing with "free" software: http://www.geekpedia.com/news193_Linux-server-market-share-plummeting.html

FFH traded 11,000 shares on Friday and 7,500 shares today. No idea why, but it is out of the ordinary.

I wonder how this conversation about ORH buyout would be different if nobody here owned ORH, and instead only held FFH. I hold some of both, but mostly FFH. My heart is where my treasure lies, and it isn't screaming for paying above book (via ORH) for the same assets that can be bought below book (via FFH).

Oh, so you are talking about buying the convertible preferred are you? Berkshire's WFC position is more than 70x larger than their GE position.

Berkshire did not purchase any GE shares in Q1. That is a huge red flag for me. Berkshire has a miniscule position in GE and it's clearly a large enough stock where Buffett can really sink his teeth into it. I think it is likely a Lou Simpson holding given Warren's propensity for concentration when he really likes something. Instead he bought more BNI and JNJ. Buffett has a small pool of stocks to choose from (combination of Berkshire's size and his strategy that relies on predictable outcomes over long time horizons). GE didn't make the cut, not even at $5.73. I bought back the GE puts that I had written -- wrote more WFC puts instead at prices where Buffett would be comfortable to put 100% of his net worth into it.

It's interesting that you can see what HWIC can't. Myself, I own no GE and can't analyze it. I posted the quote by Watsa to bring some balance to this thread. You are focusing on their present difficulties, and I am sure HWIC bought GE for it's long term potential. I don't think you can explain it away by suggesting they were naive about how bad the economy would get -- I mean, you are talking about the man with the "100 yr storm" vision after all.

Some facts: S&P cut GE's rating on March 12th. Fairfax still owned 10 million shares of GE on 3/31/09, after trimming the holdings of GE by 15% to buy other names like USB (by comparison, JNJ, KFT, PFE, DELL were all trimmed by 9%-10%). At the end of March, was the worst of the crisis starting? Maybe he still just hadn't heard the bad news yet on the economy, the part about GE capital, and the jet engine and locomotive business hurting?

Somebody at the AGM (summarized here on this board) explained that taking the rest of NB was done to improve holdco cash flow. Same could be said about ORH I suppose, but not clear to me if the new NB cashflow is enough to make them comfortable. I simply want ORH to at the very least buy another 9.5% (roughly) of it's shares so that FFH owns 80% -- just in case we need the tax sharing again one day. That could be nearly completed by now except for the fact that they haven't repurchased a single ORH share (that we know of) since Q3 2008 I believe.

I don't see why they should buy ORH at the 1.2x (minimum) multiple you likely expect when they can instead purchase FFH shares for way less than that.

Prem Watsa says (Nov 2008): "General Electric has never been valued this cheaply in 50 years. GE at $15-16, represents seven times earnings, over 8% yield -- which takes you right back to the 50s. This is a AAA-rated company. It has a tremendous record and today you can buy it at these very low prices."

I remember hearing that Brian is at the more bearish end of the spectrum. For him to buy now (with such a huge equities weighting as percentage of book at last report) suggests to me that they've put some hedges back in place, or taken some gains off of the table. Purely speculation of course.

Going forward, I am curious to see whether the volatility will be reduced with the much smaller aggregate short position.

I never mentioned liquidation. The way you phrased it though, it sounds like you aren't addressing Cardboard because you didn't mention him by name until the next paragraph. I'm the one who thinks capital gains are much better when they are bigger :-) Nothing at all about liquidation.

I'm not valuing the company with book value. Gains do flow to book value though, and when people were expecting a higher book value, it's another way of saying they expected more gains. If you are ignoring gains in valuing the company, you are doing it wrong.

During Q4 the 30 yr treasury yield was at roughly 2.5% for a while. Nobody knew how much was going from Treasuries to Munis during October... some thought there would be huge bond gains in Q4, but as it turns out the selling of treasuries happened between 3.5% and 3%. Gains yes, but not as much as some hoped. Some were expecting book value to be better than it was -- once earnings came out, the stock started dropping.

If an amount of money was at period 1 was being spent and invested, but now in period 2 is being held in cash, then that's severely deflationary. You could borrow that money and distribute it, for free, and even finance it by printing currency, and it still wouldn't be very inflationary, as it is just taking domestic product to a level previously achieved. This makes sense, you have a balancing scale where on one side you have deflationary forces and on the other side inflationary forces. It is said that there has been a permanent "reset" in spending, that prior levels were sustained by debt and that people aren't going to (and can't) return to those habits anytime soon. In that sense, a certain degree of money printing is safe because their spending isn't coming back to prior levels.

I do remember Mungerville buying at something like $80k in 2005 and selling very near the top around $150k. Now, class B shares back at $83k equivalent again.

While that is true, a gain of 50% in the S&P500 (merely recovering the ground lost last year) would leave Berkshire's shareholder equity behind. Too much of Berkshire is privately held and not marked to a bid for these kinds of 12 month comparisons to be terribly meaningful.