A_Hamilton

Also, the CNBC story has this wrong...the rating cut was to Ba2, not Baa2. The following is the full text of the Moody’s statement: Moody’s Investors Service has today downgraded Portugal’s long-term government bond ratings to Ba2 from Baa1 and assigned a negative outlook. Concurrently, Moody’s has also downgraded the government’s short-term debt rating to (P) Not-Prime from (P) Prime-2. Today’s rating action concludes the review of Portugal’s ratings initiated on 5 April 2011. The following drivers prompted Moody’s decision to downgrade and assign a negative outlook: 1. The growing risk that Portugal will require a second round of official financing before it can return to the private market, and the increasing possibility that private sector creditor participation will be required as a pre-condition. 2. Heightened concerns that Portugal will not be able to fully achieve the deficit reduction and debt stabilisation targets set out in its loan agreement with the European Union (EU) and International Monetary Fund (IMF) due to the formidable challenges the country is facing in reducing spending, increasing tax compliance, achieving economic growth and supporting the banking system. RATINGS RATIONALE The first driver informing today’s downgrade of Portugal’s sovereign rating is the increasing probability that Portugal will not be able to borrow at sustainable rates in the capital markets in the second half of 2013 and for some time thereafter. Such a scenario would necessitate further rounds of official financing, and this may require the participation of existing investors in proportion to the size of their holdings of debt that will become due. Moody’s notes that European policymakers have grown increasingly concerned about the shifting of Greek debt held by private investors onto the balance sheets of the official sector. Should a Greek restructuring become necessary at some future date, a shift from private to public financing would imply that an increasingly large share of the cost would need to be borne by public sector creditors. To offset this risk, some policymakers have proposed that private sector participation should be a precondition for additional rounds of official lending to Greece. Although Portugal’s Ba2 rating indicates a much lower risk of restructuring than Greece’s Caa1 rating, the EU’s evolving approach to providing official support is an important factor for Portugal because it implies a rising risk that private sector participation could become a precondition for additional rounds of official lending to Portugal in the future as well. This development is significant not only because it increases the economic risks facing current investors, but also because it may discourage new private sector lending going forward and reduce the likelihood that Portugal will soon be able to regain market access on sustainable terms. The second driver of today’s rating action is Moody’s concern that Portugal will not achieve the deficit reduction target — to 3% by 2013 from 9.1% last year as projected in the EU-IMF programme — due to the formidable challenges the country is facing in reducing spending, increasing tax compliance, achieving economic growth and supporting the banking system. As a result, the country may be unable to stabilise its debt/GDP ratio by 2013. Specifically, Moody’s is concerned about the following sources of risk to the budget deficit projections: 1) The government’s plans to restrain its spending may prove difficult to implement in full in sectors such as healthcare, state-owned enterprises and regional and local governments. 2) The government’s plans to improve tax compliance (and, hence, generate the projected additional revenues) within the timeframe of the loan programme and, in combination with the factor above, may hinder the authorities’ ability to reduce the budget deficit as targeted. 3) Economic growth may turn out to be weaker than expected, which would compromise the government’s deficit reduction targets. Moreover, the anticipated fiscal consolidation and bank deleveraging would further exacerbate this. Consensus growth forecasts for the country have been revised downwards following the EU/IMF loan agreement. Even after these downward revisions, Moody’s believes the risks to economic growth remain skewed to the downside. 4) There is a non-negligible possibility that Portugal’s banking sector will require support beyond what is currently envisaged in the EU/IMF loan agreement. Any capital infusion into the banking system from the government would add additional debt to its balance sheet. Moody’s acknowledges that its earlier concerns about political uncertainty within Portugal itself have been largely resolved. Portugal’s national elections on 5 June led to the formation of a viable government, both components of which had campaigned on the basis of supporting the EU-IMF loan agreement negotiated by the previous government. Moody’s also acknowledges the policy initiatives announced at the end of June demonstrate the new Portuguese government’s commitment to the programme. However, the downside risks (as detailed above) are such that Moody’s now considers the government long-term bond rating to be more appropriately positioned at Ba2. The negative outlook reflects the implementation risks associated with the government’s ambitious plans. WHAT COULD CHANGE THE RATING UP/DOWN Developments that could stabilise the outlook or lead to an upgrade would be a reduction in the likelihood that private sector participation might be required as precondition for future rounds of official support or evidence that Portugal is likely to achieve or exceed its deficit reduction targets. A further downgrade could be triggered by a significant slippage in the execution of the government’s fiscal consolidation programme, a further downward revision of the country’s economic growth prospects or an increased risk that further support requires private sector participation.

I wish he would have stopped as I now find him to be a biased source of information (for one), as opposed to a professor trying to articulate possible ways to apply the value investing craft. His consistently repeated phrase about losing 200 bps of performance, for instance. What does he base this on? Is he saying that if you bought the S&P 500 index instead of the S&P 500 equal weight index you lost 200 bps over the past decade? This would be perfectly obvious as small and midcap names outperformed large caps in the past decade. I would bet significant sums of money that the S&P 500 index will outperform an equal weight S&P 500 over the next decade based on current valuations alone. I just find these types of comments to be marketing throw aways so that he can get money into his fundamentally indexed product. Also, he notes that over the last few decades buying stocks with the lowest P/E's has worked better than it has in past periods, and that people should just continue to buy names with low multiples...I agree that it is a great starting point, but not an investment strategy. How much of that increased success of reversion to the mean strategies is due to easy money policies in the Western world over much of the past 30 years? Do you know how many people buying low P/E, higher debt/equity names got an arm chopped off in the crisis and would have lost everything had QE been prescribed in a lower dosage?

I've become less enchanted with Greenblatt over the last few years as he has worked to push his version of indexed products onto the street. I wish he would have stopped after You Can Be A Stock Market Genius.

Up nevermind. Just read the press release from yesterday. Thx. -A. Hamilton

Munger, Where did you pull the $1 bn share repurchase number from? Thank you. -A. Hamilton

15% Cash (ex-short collateral). Longs are 100% hedged by Russell 2K shorts.

In what sense does he offer no insight? His long term focus on data has lead him to be particularly prescient at spotting anomalies in different asset classes. His datasets are a wonderful toolkit for value investors to say nothing of the innumerable regulators and politicians who would be aided in their policy making activities by quickly reviewing his data. Also, what is wrong with trying to think of a new insurance market that homeowners could utilize to limit their exposure to the price of their home, or, limit their exposure to being unable to come up with the money to pay their mortgage? I don't think you are going to do much better than disability insurance and life insurance but what is the harm in trying to explore that route?

Why don't you just short the index (IWM, SPY, QQQQ)? Why do you need to be going short 2x and 3x? Decay on these things could kill any return you are looking for from your "hedge."

You are correct. 10 warrants=1 share

Yes, multiply by 10.

I'd suggest calling FFH and leaving word with investor relations that you would like a copy mailed to you. They probably have some leftovers. It is worth every page.

I wonder if FFH still owns its $300 million plus in face value of Greek debt...

He can't just Buy the Gap...it is controlled by the Fisher family...and they have a pile of money outside of GPS that they can throw at this thing if it gets hostile...

Obviously the major risk with these guys is pricing regulation from governments. What is interesting to think about, however, is that for developing countries, the governments actually like increased penetration of electronic processing as it increases tax reporting substantially (or at least increases recoveries on audits from merchants). I don't know what this does for valuation, but interesting to think about the different incentives that governments have in the way that they treat these things over the next 5-10 years.

Francis Chou owns some of the bank warrants and wrote about them here (http://www.choufunds.com/pdf/SA10%20pdf.pdf). I picked up some WFC warrants a while ago...figure I'll look at the price again 5 years from now... Below, August 13, 2010 prices of some banks stock warrants. Warrant - JP Morgan Warrant Price - $12.51 Warrant Strike Price - $42.42 Stock Price - $37.50 Expiration Date - 10/28/2018 Strike Price Adjustment - Quarterly Dividend over $0.38 Warrant - Capital One Warrant Price - $14.50 Warrant Strike Price - $42.13 Stock Price - $38.82 Expiration Date - 11/14/2018 Strike Price Adjustment - Quarterly Dividend over $0.375 Warrant - Bank of America, class B Warrant Price - $2.59 Warrant Strike Price - $30.79 Stock Price - $13.23 Expiration Date - 10/28/2018 Strike Price Adjustment - Quarterly Dividend over $0.32 Warrant - Bank of America, class A Warrant Price - $7.12 Warrant Strike Price - $13.30 Stock Price - $13.23 Expiration Date - 1/16/2019 Strike Price Adjustment - Quarterly Dividend over $0.01 Warrant - PNC Warrant Price - $11.50 Warrant Strike Price - $67.33 Stock Price - $55.09 Expiration Date - 12/31/2018 Strike Price Adjustment - Quarterly Dividend over $0.66 Warrant - Wells Fargo Warrant Price - $7.77 Warrant Strike Price - $34.01 Stock Price - $25.84 Expiration Date - 10/28/2018 Strike Price Adjustment - Quarterly Dividend over $0.34 Warrant - Comerica Warrant Price - $12.20 Warrant Strike Price - $29.40 Stock Price - $35.87 Expiration Date - 11/14/2018 Strike Price Adjustment - Quarterly Dividend over $0.66 Warrant - Valley National Warrant Price - $2.24 Warrant Strike Price - $17.77 Stock Price - $13.48 Expiration Date - 11/14/2018 Strike Price Adjustment - Quarterly Dividend over $0.1814

SJ-They've owned USG for a time now. Seems to be a similar play to Abitibi...USG is the low cost producer... Vinod-The holding in Intel is a convertible bond. -A. Hamilton

Very few changes here. Boston Properties holding of $5 million is gone. Biggest change I see is the reduction in the JNJ stake by ~1.5 million shares.

Well they sure do have conviction in the CPI Floors. Notional value is up to 49.1 billion. Over 5% of book value (at cost) has been put into the trade! Hope I own enough FFH to survive what they see coming!

Anyone else not seeing the interim financials on their website?

Herk has generally checked out of investments at his namesake firm. He sits on the company's midcap committee which runs relatively little of the firm's capital (Though he does still do a good bit of marketing). If you want to get insights from him ask him about his best investments in the 1985-1993 period. He's better for case studies than current ideas.

As Andrew Carnegie said, "Put all of your eggs into 1 basket, and watch that basket!"

4 Long Holdings FRFHF 23.6% SMBC 42% FSFG 14.2% JPM 15% Cash 5.2% __ Short IWM ~60% of portfolio.

In case anyone missed it: Moody's upgrades Fairfax Financial (senior to Baa3); outlook stable 2011-03-15 21:36:06.115 GMT New York New York Enrico Leo Robert Riegel Asst Vice President - Analyst MD - Insurance Financial Institutions Group Financial Institutions Group Moody's Investors Service Moody's Investors Service JOURNALISTS: 212-553-0376 JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653 SUBSCRIBERS: 212-553-1653 Moody's upgrades Fairfax Financial (senior to Baa3); outlook stable Approximately $1.5 billion of rated debt impacted. New York, March 15, 2011 -- Moody's Investors Service has upgraded the senior unsecured debt rating of Fairfax Financial Holdings Limited (Fairfax; TSE: FFH) to Baa3 from Ba1. Moody's also upgraded the preferred stock rating of Fairfax to Ba2 (hyb) from Ba3 (hyb) and the trust preferred stock rating of Fairfax's affiliate, TIG Capital Trust, to Ba2 (hyb) from Ba3 (hyb). These actions conclude a review for possible upgrade that was initiated on December 13, 2010. The outlook for the ratings is stable. RATING RATIONALE "The upgrade of Fairfax's ratings reflects a continuation of favorable trends in terms of the group's financial flexibility including: significant dividend capacity from its insurance subsidiaries (approximately $750 million in 2011 without regulatory approval); abated risk at its run-off insurance operations; the ongoing commitment to maintain approximately $1 billion in cash at the holding company as well as the overall improved diversification across the Fairfax group of companies," explained Moody's Assistant Vice President, Enrico Leo. Moody's also expects that adjusted financial leverage will remain at or near current levels (31% as of 12/31/10), and that any future acquisitions will be managed to maintain the group's financial flexibility. Fairfax maintains a diversified revenue stream by product and geography, particularly as it now owns 100% of Odyssey Re (A3 IFS, positive), Northbridge (Canadian insurance operations, unrated), Crum & Forster (Baa1 IFS, stable), Zenith National (A3 IFS, stable) and First Mercury (Baa2 IFS, positive); and has about 20% of its operations outside of North America. Several challenges remain significant to Fairfax's credit profile including historically weak operating earnings (excluding realized gains) at its insurance operations, exposure to catastrophe risk, the high level of common stock investments (though a substantial portion of equities are currently hedged), and historically volatile loss reserves particularly at its run-off operations. In determining the Baa3 senior debt rating, Moody's considered the collective insurance financial strength ratings of the Fairfax group of companies and the debt outstanding at intermediate holding companies, which results in structural subordination at the ultimate holding company. The structural subordination at the ultimate holding company is mitigated by both the diversification of businesses and by the commitment to maintain significant levels of cash at the parent company. The outlook for the ratings is stable. The rating agency said the following could lead to an upgrade of Fairfax's rating: (1) stand-alone insurance financial strength ratings of the company's lead operating P&C and/or reinsurance companies are upgraded; (2) adjusted financial leverage consistently below 30% and operating earnings coverage (excluding realized gains/losses) consistently above 4x; and (3) aggregate combined ratios consistently less than 100%. Conversely, the following could lead to a downgrade of the ratings: (1) stand-alone financial strength ratings of the company's lead operating P&C and/or reinsurance companies are downgraded; (2) adjusted financial leverage consistently above 35% and earnings coverage (excluding realized gains/losses) consistently less than 2x; (3) holding company cash and marketable securities is not maintained above $750 million and above 3x total fixed charges; and/or (4) significant adverse reserve development at Fairfax's run-off or ongoing operating subsidiaries (greater than 1% of gross reserves). The following ratings were upgraded, with a stable outlook: Fairfax Financial Holdings Limited -- senior unsecured debt rating to Baa3 from Ba1; preferred stock to Ba2 (hyb) from Ba3 (hyb); TIG Capital Trust I -- trust preferred stock to Ba2 (hyb) from Ba3 (hyb). Fairfax is a financial services holding company which engages in property & casualty insurance, reinsurance, and investment management through its operating subsidiaries. As of December 31, 2010, Fairfax reported net premiums written of $4.4 billion and net income of $471 million, and year-end total shareholders' equity of $8.7 billion. The principal methodologies used in these ratings were Moody's Global Rating Methodology for Property and Casualty Insurers published in May 2010 and Moody's Global Rating Methodology for Reinsurers published in July 2008. REGULATORY DISCLOSURES Information sources used to prepare the credit rating are the following: parties involved in the ratings, parties not involved in the ratings, public information, and confidential and proprietary Moody's Investors Service information. Moody's Investors Service considers the quality of information available on the issuer or obligation satisfactory for the purposes of maintaining a credit rating. 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Small Cap, What I'm saying is that if I buy say 25 bonds, am I going to get a horrible quote when I try to sell these, versus 100 bonds. How big of a lot do I need for a broker to give me something close to what an institution would get for these versus a retail holder.

Anyone have thoughts on how many bonds one needs to purchase so that they don't get their faced ripped off when they try to sell these?