beerbaron
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Posts posted by beerbaron
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Am I reading this thing wrong or the chart point that when PE are increasing the 20 year return increases? It seems counter-intuitive to me...
BeerBaron
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Mr. Watsa has put Fairfax’s money where its mouth is, making investment decisions that cost the Toronto-based insurer substantially in 2010. The company increased the proportion of its stock portfolio that is hedged from 30 per cent to close to 100 per cent in May and June of last year.
Its timing wasn’t perfect, and the move cost it $936.6-million as markets rose.
I didn't follow this. Does he mean $936 M in unrealized losses?
Otherwise this looks huge to me...?
I think it's pretty much break even. It cost FFH 936M$ but they had Equity Gains of close to the same amount. True up to a month ago hedges cost them a lot a profit... not the same ballpark today.
BeerBaron
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With all the noise around I decided to make a simple logical exercise. What is the certain real effect of a treasury downgrade on the future profits of America's corporation:
On Banks
-If Treasuries are not AAA anymore then their Tier 1 capital decreases. Increases their financial leverage and risks associated with them.
Some people would think that this would dampen the recovery by reducing lending but it is not it. Banks have all been increasing their capital, because they just can't find anybody to lend to.
-If Treasuries are not AAA anymore yields will go down and interest rates up. Impacting spreads.
People are not stupid, they know the USA can print their own money. How could you fear default in that situation? Yields should be relatively unaffected by the downgrade.
On Insurers
-Insurers would likely have to increase their statuatory capital. Reducing the quantity of business they can do.
True, but their is an oversupply of capital right now in the insurance industry. It can only help to reduce the supply in the mean term.
On Businesses
-If yields do not change, there is very little impact.
True
On USA foreign lenders
-China will stop lending to the USA
China has been buying treasuries for their own interest. They do not intend to make any profit on those treasuries, they are just aiming at moving the manufacturing industry and fuel their growth by keeping their currency low. They know they will get 10 cents on their initial investment in 30 years. But who cares, they will have grew 13 times their GDP by then.
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Buffett explained something pretty similar in it's 1999 speech in Sun Valley. Risk free rate is the law of gravity in finance. Stock are just perpetual bonds with variable coupons and principal.
The question tough is what to do... if you have bonds then the same effect applies as to stock. Variable rates preferred... maybe.
6.4% is not all that bad if you compare with 30Y treasuries.
BeerBaron
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I'm glad to have about 15% in BRK, the old guy does a better job at making me rich then I could myself.
BeerBaron
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Plus, you gotta remember when you're look at valuation, these historical numbers were based on higher interest rates. So, that would mean stocks don't look as highly valued in relative terms, at least.
Amen, how high you jump without considering gravity is kinda irrelevant!
I'm sure Buffett is starting to feel like an undersexed guy in the Playboy mansion :)
BeerBaron
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This was indeed a great day. You know you are a Value Investor when your portfolio goes down 4% and you get all excited to buy cheaper then before.
Question : Will FFH hedges support the stock for long... or soon some people will start selling their wins (FFH) to buy cheap stuff?
5% Cash now, but will get a nice 30% cash influx within the next 2 weeks we will see where we are when I get there.
BeerBaron
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Yeah I'm from Longueuil. Glad to know some people in Quebec think about money ;)
BeerBaron
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"Half of my "friends" are people from work (Anglophones), another part is family and friends (Francophone), and another part is people I vaguely knew at one time.
Liberty are you from Montreal?
BeerBaron
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Did any of those filings ever sticked? From my experience, courts are very carefull to start putting their nose into business administrations.
BeerBaron
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How come the WSBase still climbs without QE2...
BeerBaron
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I've been trying to import SEC 13F statements into Excel. Anybody tried it, so far Excel won't recognize the data as a table...
BeerBaron
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Used car shopping is lots of fun for a value investor. The market is pretty inneficcient (altough the internet brings it closer to efficient), the perceptions on cars is as bad as novice investors. And, nobody seems to do any cash flow projections when buying cars.
For example, over here in Montreal you can buy a 125k km Intrepid for 1500$, fully equipped. Compared with a 5000$ Civic with about the same life expectancy.
People will tell you, it's a lot cheaper to buy the Civic because it's so cheap on gaz totally ignoring that 3500$ difference.
They will also tell you, Civic break a lot less. Totally ignoring that breaks, suspension etc is normal maintenance and would have to be replaced as often.
In the last 5 years I think my cost of ownership for cars has been below 100$ per months excluding gaz. That is value in my book!
BeerBaron
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Insurance is a tricky beast you sell a product before knowing what the price is...so companies with good combined ratio that suddenly drops because of an accident year were probably selling their product too cheap. As simple as that.
BeerBaron
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It's probably the conversion of bonds to equity in the bankruptcy.
BeerBaron
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Up 30%+ on realized seasonal sector rotations & unrealized gains. Unrealized gains are down by about 50% but we see it as being largely temporary. If something doubles in 3 vs 2 years its still a compound ROI of 26%
SD
Lol
If you call the tail of a dog a leg. How many legs does a dog have?
BeerBaron
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Not nearly as good as a month ago. Lots of volatility in my portfolio for such a mix of quality businesses. Value and size seems to get a hit these days. RIM did not help too.
BeerBaron
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My preferred accomplishment from Schiller was it's studies on the price of a stock VS all it's future discounted dividends. He basically explained that the market overshoot by a wide margin by discounting all the discounted future dividends of the SP500 and adding the SP500 chart on the same chart.
You guys might want to watch it's course on Columbia University. Pretty interesting.
BeerBaron
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Whatever the number of jobs, I would put the odds of a temporary tax levy pretty high. Obama does not have a lot of cards to play, if he could get the jobs and the shareholders happy at no direct cost why would he not... That is why I won Cisco, it's a nice speculation imbedded in a nice investment.
BeerBaron
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There is no need in the industry for a short-only hedge fund. His outperforming his peers by 7-8% is the same as a stool with only three legs...much better than a stool with only two legs, but do you still really want to sit on it? Wherewithal be damned! Cheers!
Actually a 3 leg stool is technically better then a 4 leg more. A 3 leg stool will never wobble..
;)
Beerbaron
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Btw, was I the only one who thought this was a second "HarryLong with an idea"-thread?
Yeah, I tough it was Harry. The subjects should be changed to something meaningfull.
BeerBaron
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You think you know the risks until you don't. Risk management is not dealing with what we know but what we don't know.
You are totally right!
I am an Engineer in product development and risks are the things you don't know. This is what will kill you or your product. So what should you do if you don't know the risks?
Well for starters you will learn more about what you think could be the risks. You would take a few hours sitting in front of a piece of paper and write down everything that could go wrong. You'll likely miss some but you should get 80% if you are good and 90% if you are experienced.
Once you have your list you go each point one by one and you try to see how to protect from it either by test, material, theoretic analysis, etc...
After this process you might have some issues you did not think of, but you'll be a lot better then if you did not do anything to prevent all the other things.
I try to apply the same strategy to investing. I might have missed lots of risks by investing in RIM but I took great care to try to find as many as possible, find the problems early and solve... if possible.
I do agree that Sino is a very high reward I just can't put any range of number on the numerator (risk). If your capable of doing it then you'll statistically be doing very good return on the long run.
BeerBaron
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You guys are missing the point. By a lot.
The point is not to be risk averse, or that you should never invest when there is a risk of a zero. Every stock technically has a risk of zero. You'll see that I said.
"I'm all for taking high risk asymmetric bets, but you can only do that when you do research and know the odds."
You guys are just assuming that this is an asymmetric bet because the downside is zero and the upside appears to be a five bagger.
What we're missing here is the odds. It's only an asymmetric bet if the odds are not skewed. The lottory has a million dollar to one dollar payout (or more). Does that mean you should invest? You must know the odds.
And you don't. You don't even have a vague idea of what the odds are. You may think you do but you don't.
You haven't went through the MW report and repudiated it. Not even close. You couldn't have done 1/10th of the research you need to on this complex situation in this amount of time, and yet we have a legion of buyers. You're just gambling, because you don't know what you're buying, although it may feel like investing.
This isn't some little company that you can just read the 10K and a couple of shareholder letters and be ready to buy. This is a very very complex situation where for the time being one cannot trust the reported financials, and has to reconcile them before you even begin to decide if it's a good company.
Buffett likes to say that if you can't figure out who the patsy is at the poker table, it's you. Think of who's on the other side of your trade. MW did 2 months of on the ground work, with 10 analysts and could (and almost did) write a book on their thesis for this company. It's not perfect, and it's looking like they may have gotten the lumber shipments part wrong, but it's still pretty damn good. That's who's on the other side of your trade, who do you think has the edge?
You buyers have 40 pages to refute. I suggest you get to work, or put it in the too hard pile. That's what I did (I'd take it out if I could get the borrow). Otherwise you might as well go to Vegas and have fun while you gamble.
Your 100% right Hester, when I red about the 2$ puts I got excited. Did some research and could not find any reasons for such high put price. So I did not sell any... because I could not establish an odd. It felt like I was the patsy.
The whole point of investing in higher then average risk is to have an idea of the odds. For example I bough some RIM last week but I knew dam well what were the issues with the company and the phone market. But I also tough the price was not fully accounting the possibility of a turnaround... PE expansion and earnings growth do wonders in turnarounds. Now all that is left for me to do is wait and keep focused for the risks to materialize or not... but at least I know the risks.
BeerBaron
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You might take a look at SBSI, especially how well they have managed both side of their balance sheet. These guys breed risk management and experience. They have been in the top 10% on the investment side for a while too...
Banks are good investments but I'm not sure much growth will come out in the next few years. Demand for loan just does not seem to pick-up which would point to deflation in the future.
BeerBaron
Fairfax Buys Their First Non-Insurance Business!
in Fairfax Financial
Posted
I love how accurate those "estimates" are... anybody estimating M$ to the single digit is either an IRS agent or a complete idiot.
BeerBaron