Crip1

Nicely done...

Not if that US or canadian producer has a ton of debt obligations he/she needs to meet! The hypothetical US or Canadian producer with a ton of debt has a finite amount of time in which they can produce at a loss, as does Russia, SA, etc. But, the US/CDN producer has a much greater finite amount of time. -Crip

Simple, and freaking funny. -Crip

Full disclosure, this is one story so should not be taken, in and of itself, as an incrimination of the whole company….and the names are omitted to protect the innocent. Back in the late 70’s, McKinsey was brought in to consult a major corporation (Company A). After substantial amounts of time/effort, McKinsey said that Company A had a good business and was good at what they did, but that they needed to diversify to better ride out cyclical trends, etc. Company A, after paying McKinsey fees for services performed, did just that. Fast forward to mid-80’s, and Company A brought McKinsey back in for another consulting session. McKinsey, after thorough analysis, indicated that the businesses that they had brought in were all find and dandy, but recommended that Company A was spending too much time on all of these unrelated businesses and that it was better for them to focus on their “core competency”. To do so, Company A needed to sell these ancillary businesses. Company A, after paying McKinsey fees for services performed, did just that. I currently work at one of the firms Company A sold off. My guess is that chutzpah (which is sometimes very similar to arrogance) on part of McKinsey in both instances helped seal the deal. If one walks around like they’re a bad-a**, some people will believe it. It’s part of the culture there; IMHO, because it works…people buy it…companies buy it. This is not necessarily an incrimination of McKinsey; it’s more an observation on how the business world seeks activity over inactivity, even if the activity has marginal ROI. I’ve witnessed way too many presentations of division leaders speaking to initiatives for the coming year and not speaking to the success/ROI on the initiatives from the previous year. “We’re gonna do this and that” plays in the boardroom better than “That thing we worked on last year? Well, it went OK, but didn’t really amount to a hill of beans for the organization”. Management did not really need to go hog wild after the first consulting engagement, but they did. It was sexier and likely meant job security. Same thing with the second engagement…did ALL of the non-core firms needed to be sold? Likely not, but doing so meant more time, effort and job security. This parallels investing. When the average person talks to their advisor, he/she does not want to hear “I’ve not bought or sold anything in the past 3 months, but I’ve looked at some companies and decided to pass, I’ve also read a lot of material to further enhance my cross-functional latticework of mental models”. The average Joe wants to hear “We bought this, sold that, shorted the other one and did a double-swap-bocephus-option on a new nanotech company”. The chutzpah on part of the advisor, which can be seen as arrogance, helps sell the strategy. Looks like I went on a bit of a tangent, there. My apologies. -Crip

Bsilly, It's great to see your name attached to a post again. You and Cardboard were voices of reason during a pretty dark time in the existence of Fairfax. For that, you have my sincerest appreciation. It would be good to hear your thoughts on, well, darned near anything going forward. I hope all is well for you. Take care. -Crip

I have no reason to disagree with your logic. Full disclosure, I am a long-term FFH holder. The quote above is isolated because I am not in agreement that the same thing will happen again should FFH's hedges work out down the road. The reason is that things have changed from then until now. In 2008/2009, FFH was a one-trick pony in that they could invest. Their insurance results were sub-par. Now, their insurance are substantively better, very profitable. If the insurance operations continue, then I would opine that multiple expansion overall would take place and that any contraction as a result of a macro bet would be muted compared to 2008-2009. Stated differently, a company with mediocre operations but that kicked-butt on a macro bet is less valuable than a company with solid ongoing operations that kicked-butt on a macro bet. -Crip P. S. I hated for years the usage of "bet" when discussing Fairfax...I thought it misrepresented the hedging aspect. The tune has changed to an extent.

Some key data that flies in the face of the deflation thesis... http://finance.yahoo.com/news/why-buffalo-wild-wings-prices-are-going-up-nov--1st-152124092.html ;) -Crip

Not Your Father's Root Beer. Yes, it is sweet, as root beer is. But, it definitely works for me. I am more of a beer and whisky guy with lighter beers for summers here in Texas, heavier beers and whiskys for winters. The Root Beer, though, I find to be great, and it selling like crazy down here. It's the richest root beer I've ever had, and possesses a definite kick (5.9% ABV). To each his own. -Crip

Yes, the zero bound is a very different picture. Today's 30 yr amortization schedule mortgages on the books will run-off at an accelerated rate due to the fact that a low-interest loan has a very high principle component. Take a loan at 4% with a 100,000 initial balance. It's first monthly payment has a $144 principle component and a $333 interest payment. Compared to a loan at 8% with a 100,000 initial balance. It's first monthly payment has a principle component of only $67 and an interest component of $666. So the debt runs off at twice the pace in the beginning days of a mortgage. So the household expenditures to service the debt today are night and day apart compared to those historical periods when the household debt to GDP was lower. Most of the household debt out there is mortgage debt. Not only are the household debt service ratios are historically healthy/normal levels today, but the absolute amount of the debt (which is historically high) is running off at a historically high rate. It's not anywhere near as simple as looking at a chart. The charts don't tell us how fast the debt is running off vs other periods in history. I'm in the industry and know that our group has seen a higher percentage of new originations being 15 or 20 year compared to the more traditional 30 year. Again, the 30 year amortization schedule is still the norm, but 15's are gaining popularity in our shop. Project that over the industry and the run-off rate to which Eric refers is amplified. -Crip P. S. Seeking to see what I can get for a more holistic view of this.

That's why I am a member of this board. -Crip

The $625K more could also be shown as 4 years of delay in retirement assuming not saving any money and returning 8% on the nest egg or 6 more years by returning 10% on the nest egg. Again, plenty of factors come into this but 3 years of work may be worth it for the piece of mind. -Crip

I can't recall who came up with the 4% withdrawal rate but that, IMO, is rather high for the following reasons: * As discussed ad nauseum, the frothy state of the equity markets suggests that future returns are likely to lag historic averages due to mean regression if nothing else. * Inflation is benign right now, but if someone retires now at 65 and lives to 90, it's almost a sure thing that they will see a period or two of inflation, potentially rampant, so that 4% will not buy squat at some point. * The unknowns are plentiful when projecting out a 25 year retirement with the surprises tending to be negative (health costs, potential illness/injury, previously mentioned inflation). * If one is going to be wrong in withdrawal rate, it is far better to have estimated more "have" compared to "need" than to have estimated more "need" compared to "have". There are several factors which will drive my ultimate retirement time, but one that I am looking at is whether I can live on a 3% withdrawal rate. Right now, I can't. I do think that the 3% provides enough margin of safety for an individual considering retirement. -Crip

Though I've found your postings to be quite good, I disagree with the assertion above. I find this board to be extraordinarily valuable, still. -Crip

Love: Amazon. I pretty much research all my non-grocery store purchases there first before buying...and often buy from Amazon as well. Hate: This one is tough. Perhaps it's because hatred is only arrived at by repeated disappointment/frustration and I don't get that far because if I get disappointed or frustrated once or twice, I simply avoid. -Crip

In this case, I think you’re actually adding his old arguments to this one and it makes you take his tone worse off than it is. I will add; Jurgis is totally right. What you are failing to account for is that the machines are not limited to the kinds of data that as humans we have to deal with. They can see all around the car, react effectively instantaneously, etc. They will also be able to predict these situations (lack of visibility of potential incoming objects) and reduce their speed preemptively to compensate. There’s no contest. All that said, it’s still going to be a pain to get the regs through, but it will happen. How about driverless cars that have been hacked? They become drones that seek out pedestrians and run them over deliberately. Driverless car technology currently reads the painted lines on the road -- how does this work when a malicious person has deliberately repainted the road to guide the cars straight off a cliff? This could be a problem as well: http://i.imgur.com/2RZrwFZ.gif -Crip

Ran into that as well and ended up circumventing by typing everything into Word, spell checking, etc, and then pasting into the site. -Crip

Drives me absolutely crazy... -Crip

Like all urban legends, this one started on a day when FFH jumped while Sanj was at lunch. Upon returning to his computer, he posted that he had been at lunch and wondered what had happened while he was out. This may have happened on another occasion which caused the legend to grow from there. Other FFH shareholders asked him when he was going next, told him that he needed to take lunch more often, etc (There may have been a half-hearted recommendation that FFH holders take up a collection to send Sanj out to lunch every day). Soon after, every time Fairfax would spike up, someone would remark "Sanj must be at lunch" or, for when Fairfax opened up strongly "Sanj took a really early lunch today", etc. Someday, this will be on Snopes.com -Crip

Well, they kinda have to, don't they. The alternative is to say "Yeah, this 'funds-of-funds' product I sell is not nearly as good for your financial health as a simple S&P Index Fund" but could anyone really expect this? Of course not...just find a scapegoat and talk about how this just happens to be the best time in the history of mankind to be in an Index Fund but those days are coming to an end so one better find a good Hedge Fund manager... Loved this, though: "Admiral shares are up 63.5 percent since 2008, while after the management and performance fees are stripped out, the Seides hedge fund of funds return to investors was just 19.6 percent." "'Moreover', he argued, 'it was not the fees that accounted for the poorer performance of the hedge fund of funds, so Buffett's thesis has not been proven.'" Narcissism run amok. -Crip

Odd thoughts: In reading through this, a little voice in my head said that this is starting to look like a “Machine”. Underwriting and investing fund acquisitions which beget more underwriting and investing which generate funds which beget more... Fascinated that they did show a positive realized gain for the year in equity hedges in an up market…though they were dwarfed by the unrealized losses, it seems to indicate that they were timely in closing out some hedges. Rough Q4 where both the Equity investments and equity hedges but get hit pretty good. Ouch... Never thought I’d see the day where Fairfax’ combined for a full year would be lower than Markel’s. -Crip

Two major themes of this posting Cardboard: First and foremost, I’ve been reading Cardboard’s postings for more than a decade and have found him to be brutally honest, very intelligent, knowledgeable and, when warranted, critical. He was quite vocal of FFH-bashers back in the days of the short-attacks on Fairfax. He has also shown to be critical of several aspects of the very company he was defending, Fairfax, over the years. Now he has turned traits noted herein and set his sights on himself. One cannot help but applaud that. All too often people are reticent to do that for what are likely a number of reasons. As my expertise is not in the arena of psychology, I’ll not attempt to explain this. But I will state that challenging one’s own beliefs and actions is effective in either changing for the better or reinforcing said beliefs. I have to disagree about dividends, though. As I get closer to retirement, a well-covered healthy dividend is becoming more and more attractive. Not easy to find, but quite valuable to a “set it and forget it” portfolio. Oil: My max concentration in Oil was under 3% so the sector’s rapid decline has done relatively little damage to my net worth. Being the contrarian, I am looking for two things. First, an entry point which would be at or close to maximum pessimism. And based on the comments seen in multiple articles, I do not think we’re at or close to that point (something akin to February of 2009 when our CFO told me my recent investment in Wells Fargo was dangerous). We’re not there yet. The second challenge is to determine which survivors will be best served by the inevitable increase in oil prices. At this point, I’ve no opinion on that, but that’s the work that needs to be done in the coming months, IMHO. -Crip

Biosyent, being a smaller cap, is rather volatile. Do you have a target price or intrinsic value? -Crip

Micro: I normally tend to be pretty close to the top of the bell curve, plus or minus a little in any given year, and this year is no exception. So far, the top of the bell curve is >10% and <15% and I am at 16%. At this point, 55.5% of the respondents had returns below 15% and 44.5% were at or above that mark. Altius, EXCO and BYD were my biggest losers for the year but my relatively small positions in each saw to it that, in aggregate, they reduced my overall returns by 2%, so, I would still have been in the same bucket had I avoided those “mistakes”. Macro: I enjoy this thread every year. The reason is that to clearly displays my observation from years ago that Value Investors tend to be a humble lot, willing and able to admit their errors as they are their triumphs. One will rarely, if ever, hear the CNBC-esque-“I destroyed the market because I am a total bad-a**!!!”. One will hear “I thought that this was an easy decision and it worked out for me” or “I thought this was an easy decision but I did not see this or that impacting…”. Investing is like sports in that brilliance is not quite as important as avoiding mistakes. Because of this, I tend to buy and sell less frequently than others and have not used leverage at all. This will see to it that my returns will not be at the top, or the bottom, of the range for this group. And, I’m increasingly comfortable with that because… Personal: I’m 51 and have the goal of achieving semi-retirement by 60. The definition of semi-retirement is where the decision of where to work and what to do will be driven less by income and more by other factors, primarily lack of stress, short commute, the ability to come home and NOT think about work or to go on vacation and not feel the need to work a couple of hours every day. Arithmetically, this is quite possible but as the investment portfolio has increased, losses hurt more. Back 15 years ago, if I would have a negative 5% annual return, the amount I would add to my savings would offset that and my overall net worth would remain the same. Now, if I have a negative 2% annual return, even though I am adding more to my savings in dollar terms, my overall net worth would decline. This compels one to be much more loss adverse. As part of this group, I figure that if I can achieve annual returns equal to the mean, then the “Semi-retirement at 60” goal should be achieved. Thanks to everyone for their commentary… -Crip

Now that we've had our Airing of Grievances, it's time for Feats of Strength. Perhaps we should simply assume Muscleman wins this, put away our aluminum pole for the year and start planning for New Years Eve? -Crip

That's where my concern comes in. Except for my first purchase of FFH eons ago, I had always purchased Fairfax at below BV assuming the following: * FFH would, over time, earn an average of 15% ROE...lumpy though it may be. * At any given time, FFH would be able to be sold at BV. This meant that annualized returns would be 15% taking into account the price "catching up" to BV which is growing at the previously referenced 15% clip. Operating under those two assumptions, I did not need to know intrinsic value or fair price. Granted this is very simplistic, but I considered this a reasonably easy "hurdle" to jump over (Warren Buffett: "I don’t try to jump over 7-foot hurdles: I look for 1-foot hurdles that I can step over.") Now, the issue being faced by me now is that Fairfax is priced will above BV so, in order to maintain the 15% annualized return, either FFH needs to continue to trade at 1.3x BV as it currently trades or FFH needs to achieve better than a 15% ROE. So, with apologies for being a bit long-winded in response to your question, I don't have a firm figure/multiple. -Crip