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ERICOPOLY
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Posts posted by ERICOPOLY
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Given the BV @ 6/30, and given the FV adjustments for equity holdings such as ICICI, with the adjustments for market performance of stocks since 6/30 my estimate of BV today is $350.
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.
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Given the BV @ 6/30, and given the FV adjustments for equity holdings such as ICICI, with the adjustments for market performance of stocks since 6/30 my estimate of BV today is $350.
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.
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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.
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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).
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Of course you could gain alot too, but your exercise price has to be above $29 first. So the stock in this case, must increase in value by at least 16% first, or else you'll make a loss.
I remember going through this argument/exercise last time on the old Berkshire board, with regards to FFH.
And same thing came up: if you held stock (not the option) for $40K and it stayed flat forever, your only cost is broker commission. If the stock price went up to $29 you'd make 16% i.e. 6.4K, on the option you would only break even.
Correct me if I'm wrong here, please. (sorry I'm at work, so I'm in a rush, and haven't thought it through totally and trying to watch over my shoulder if my boss is seeing me type this ;D)
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.
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Market conditions and pricing have improved, in line with
expectations, particularly in the reinsurance account.
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.
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You don't necessarily lose when competing with "free" software:
http://www.geekpedia.com/news193_Linux-server-market-share-plummeting.html
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FFH traded 11,000 shares on Friday and 7,500 shares today.
No idea why, but it is out of the ordinary.
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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).
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He still has that convertible preferred.
The thing about buffett is he's like a liar.
He didn't even purchase that much WFC or USB at under 10. That was a BIG red flag for me.
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.
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It's it funny that in April, people were saying stuff like "GE will never go back to 10 again. that was a generational low." And now when it back at 10 everyone is thinking it is going bankrupt? This is no lehman brothers, guys. This is a deal-real manufacturing company. Now I intend to keep it 1 year+ at least, but doesn't the rally of the march lows prove that things in at least the stock market can change FAST? Remember GE at 5.73? or AXP at 9? USB (my fav) at 8?
come on guys, relax. This is not GM or citigroup (which I also own).
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.
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So b/c someone else has bought GE that means all rational analysis goes out the window?
WEB is down 50% on GE. You should at least analyze it yourself. If you saw the numbers you would think twice.
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.
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In any event, I think Watsa would probably have second thoughts now. That statement was made in late 2008, when the worst of the crisis was just starting. GE is no longer a AAA rated company.
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?
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Eric, I agree that FFH purchasing their own shares would also be a very good move. They had the same opportunity when they bought back NB... why pay 1.2xBV rather than purchase FFH back then?
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.
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I am not sure how FFH can justify spending its money on anything else at present.
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.
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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."
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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.
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Going forward, I am curious to see whether the volatility will be reduced with the much smaller aggregate short position.
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I'm not sure what would need to happen for it to liquidated in a way that would leave shareholders holding the current capital. Maybe you can help me understand that a bit better.
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.
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To be fair if you are valuing the company using BV, you are doing it wrong.
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.
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Personally, I was not really optimistic following the November announcement that all hedges had been removed. Disclosure: I had no position. I thought that they were doing exactly the right thing, but that the market would react negatively since the company was seen as a strong defensive name in what was a killing zone. So I was really surprised to see the strength in the stock in January and early February, but then everything unravelled in late February.
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.
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That's great, but to complete the circle, the money borrowed has to be repaid, either by return on investment (that's why it's stimulative to invest in infrastructure as opposed to handouts) or by taking the stimulus back (taxes). If the circle completes and the loan is repaid by wealth created ...its stimulative and non inflationary, if the loan is repaid by dilluting the currency, inflation results. If the unpaid debt is allowed to accumulate the result inevitably is credit impairment, delevering and eventual bankruptcy.
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.
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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.
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Shareholder equity was down only 9.6% last year, which was nearly 28% better than the S&P500. And that's even after Buffett admits he made a couple of errors.
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.
FFH or ORH: which do you like more right now?
in Fairfax Financial
Posted
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%