Crip1

Al, Thanks, you're right. Artifically soft. -Crip

Cardboard, You and I have similar thoughts with regards to underwriting. The ability to underwrite at or even close to the levels of Chubb, Markel, etc, would result in Fairfax becoming an absolutely outstanding investment as opposed to a good/very good investment. The results at ORH are certainly encouraging, but NB is especially concerning to me. NB had been the shining star in the portfolio for several years but that star has dimmed recently. Remember a few years back when NB was able to underwrite in the low 90’s consistently and our concerns were more centered on whether NB could grow their premium base? I get that we are in a soft market now, but even so, a best-in-class player should be able to eek out a small underwriting profit. As well, Crum was remarked a couple of years ago to have been “fixed” and while Crum is certainly performing much better than it did in the first half of this decade, it is not what one would refer to as the pinnacle of underwriting discipline. Prem always preaches “underwriting discipline”, and the reduced premium levels do demonstrate this, but my idea of discipline is more in line with the Chubbs of the world, not what we have seen from FFH. Counter-balancing this is, obviously, the investment performance. And considering that for every dollar of BV that we purchase, we are getting 82 cents worth of stock investments (give or take based on a few factors). Furthermore, this is arguably a better managed portfolio than the majority of the stock mutual funds out there. Interestingly enough, a few weeks back when FFH was in the US$250 area, we could have purchased MORE than $1 of stock investments for every $1 of market value. This is well understood so no need to belabor it (but it is nice to think about!). Assuming that the bond income can more than cover expenses, then the machine will be able to generate at least decent returns. I temper the concern of underwriting with a wildcard that I see as the market in general. As has been mentioned on this board recently, there are signs that the current hard market may be artificially hard due to a few issues. The AIG article posted by eggbriar and earlier allegations that AIG is lowering pricing based on the fact that they are backstopped by the US Government are artificially lowering pricing. Furthermore, the assertion from WR Berkley that “In addition, new entrants in the specialty lines are behaving in an undisciplined manner in an effort to establish a market presence” suggests that when the music stops, much of the P&C Landscape will be without a seat on which to sit. If Fairfax is accounting for reserves conservatively (which is likely) and some of the competition is being aggressive in their reserving (which seems to be somewhere between possible and likely), then time is on our side. Then we get a double-whammy of hardening market (when the music stops) and a crapload of capital with which to write new business. Granted that this scenario (aggressive accounting on part of competition resulting in a rapidly hardening market) is an “if” rather than a “when”, but our worst case scenario for owning FFH is enjoying the investments and underwriting at breakeven which will still work our for shareholders rather well. The best case would work out remarkably well. Better said, FFH is a heads I win and tails I really win…not bad.

"We'll come out great in the future, but the heart patient now has to go on the treadmill and lose some damn weight." Agreed in full...just concerned that the heart patient after years of cupcakes and curly-cheese-fries may not have the huevos to get on the treadmill and re-examine the diet. Not professing to have all of the answers, but am concerned that we are not dealing with the issues in the best way possible... -Crip

Great quote...

"I expect near term investment portfolio gains at ORH to outperform FFH" Viking, can you explain the rationale for this? I am not agreeing, or disagreeing, just seeking to understand the reasoning. -Crip

Oldye, I am not sure that it would add substantial content to this board to be honest, but from my perspective, it would be worthwhile for the following reasons: 1) The presumption is that boardmembers here are "better than the average investors" but it has never been quantified. Perhaps it is me, but I would really like to be able to quantitatively prove (or disprove) this presumption. 2) It would be interesting to see changes in the overall makeup of the SBFB Index. This may show a shifting between industry groups (financials to consumer stocks to services to oil/gas, etc) 3) Selfishly, there would be an element of "fun" to see where my personal holdings compare to the rest of the board. Of course, it would take a little while before we could get any meaningful long term data, but it would be interesting none the less. Woodstove...perhaps a top 5 list would yield a better result...not really sure. I do not think that we can dismiss FFH and BRK, though I am pretty sure that they would both be on the list each quarter. However, either of these companies were to drop off the list, that would strongly suggest that the one which dropped off was over-priced. -Crip

All: Just bringing this to the top. Please let me know, in addition to the voting, whether or not you feel that this is worthwhile or if you have any other thoughts on how to put this together. -Crip

Through the years there have been literally thousands, perhaps tens of thousands of postings on this board and its MSN predecessor. The topics have run the gamut from various investing ideas (pro and con) to the philosophical, macro/micro economic discussions and the occasional sports reference as well. While there have been differences of opinion, one constant is that all members fees that this board has produced some of the more rational and insightful investing discussion to be had on the web. Since we all know that numbers will tell the story the next question becomes how do we quantify this? If one describes a good baseball player the questions are invariably asked “What is his batting average? How many Home Runs does he have? What’s his ERA?”, etc. I have a proposal to help quantify to the collective acumen of this board. My thought is to establish the SBFB (Sanj’s Berkshire-Fairfax Board) Index to track our “performance” versus the various indexes of the world. The name is not really catchy so if someone of the marketing ilk can come up with something else, I would be well open to any suggestions. Here are my initial thoughts: • Poll the board to establish our initial top 10 personal holdings. This seems relatively simple in that we would have members indicate their top 3 holdings in their personal portfolios and the 10 companies with the most “votes” would constitute the initial portfolio. This would only include long positions excluding shorts, leaps, calls, puts, etc. The reason for excluding these is that when comparing against the indexes, since indexes cannot utilize these methods, allowing the SBFB to do so would provide an unfair comparative advantage. Once all of the “votes” were in, I would publish the results and establish an initial portfolio which would consist of these 10 holdings each of which would be 10% of the portfolio. • Quarterly, I would repeat the voting process gathering a new “top 10”. Should there be any changes to our top 10, I would “sell” the stocks that did not make the new list and “buy” the new entrants (effectively keeping a zero cash position). • For any dividends earned, I could either assume that they are reinvested in the applicable stock or I could hold the cash until the next quarter and invest that cash in any new holdings. I am undecided on how to do this and would welcome any opinions. In truth, this index would likely under-represent our cumulative returns for a variety of reasons. For starters, it does not lend itself to special situations where several board members are able to generate solid ST profits. As well, the lack of puts, calls, leaps, etc would presumably cause the index to underperform the portfolios of those of us who effectively use these methods as well. Finally, the dynamic nature of markets suggest that rebalancing quarterly will cause us to miss opportunities. Example, as many of us loaded up on Wells Fargo in the Feb/March timeframe, if we re-balanced on April 1, the index may have ended up buying Wells at a significantly higher price than did the board members. This is certainly important and does suggest that the sum total of our own portfolios will be better than the index. We could re-balance more often, but that would be more work and the goal of this is not so much to outstanding returns, but to roughly approximate the acumen of this board. And, importantly, if the SBFB shows that it outperforms the various indexes, we can argue effectively that the sum total of our portfolios likely outperforms by a wider margin. So…the question is simple…if asked, would you be willing to share your top three holdings quarterly with me? It would amount to simply sending your choices into an e-mail box. I’ll do the tabulation and will publish the results. Also, if you have any other ideas, please feel free to let me know (although, I reserve the right to not use an idea if it creates more work for me!!!!) Thanks all. -Crip

"People pay $400,000 for a house, I pay $400,000 for a car" - Arrogant ba***rd. I loved the way this guy played baseball, eben though I was not a Mets or Phillies fan, but I really have little patience for arrogance and lying/cheating/stealing. Now I understand that he is innocent until broven guilty, but declaring bankruptcy and being the subject of what looks to be a boatload of lawssuits does not suggest anything less than lying/cheating/stealing. You get what you have coming to you... -Crip

…justice prevails, but… http://news.yahoo.com/s/nm/20090629/bs_nm/us_madoff_10 Quoting: "I cannot offer you an excuse for my behavior," he said, speaking in a calm voice. "How do you excuse betraying thousands of investors who entrusted me with their life savings?" Wearing a dark business suit, leaning forward with his hands resting on a table, he said he tried to undo his crimes but "the harder I tried, the deeper a hole I dug for myself." He added, "I live in a tormented state now, knowing the pain and suffering I have created." Even his contrition is, at best, insincere and, at worst, criminal. He did not do this alone. He had plenty of help, plenty of “friends” who saw to it that more and more money was invested in his sham. These “friends” likely made out like bandits as well. To the best of my knowledge, no one else has been indicted over this $50B scam but there is NO DOUBT THAT THERE ARE SEVERAL OTHERS OUT THERE WHO SHOULD. If his “tormented state” is so bad, then perhaps turning state’s witness would ease the pain. And while you cannot excuse the blatant betrayal, you CAN do something about it. Birds of a feather flock together. I’ll bet my house that he knows of others, LOTS of others, performing similiarly fraudulent activities this very moment. Right now, people are being robbed blind by friends of Madoff and he is simply letting it happen. By not turning those folks in, he is betraying thousands, perhaps tens of thousands of others. A guilty conscience is worthless without decisive and positive action. Besides giving what little money he had left to “friends”, he has done nothing decisive and positive (and the giving of money to friends was hardly positive, unless you were a friend). If it comes out that he did cooperate or is cooperating with authorities and that cooperation leads to arrests and convictions, I will recant this. But, for being such a magnificent thief, he still deserves his 150 years to rot.

Thanks for the knowledge, folks. A couple of thoughts: Regarding privately managing money is to remove an objection from a couple of potential investors. The benefit is that it allows me to establish a track record of managing OPM and requires less time/effort to establish. Also, for at least one of these folks, they are held in high esteem by many others, personally and professionally, and would be a teriffic reference/networking source of future money. The partnership/fund is the ultimate desire to be sure, but privately managing funds seems like it can be a stepping stone. I like Sanj's logic regarding redemptions but would find it hard to police if the fund grows appreciably. -Crip

This is a little concerning for me, both from a BRK/MKL/FFH perspective and from a US Citizen perspective. First, of course, having a competitor whose backstop is the US Federal Government is not attractive (does not apply now but in the future...). But secondly, I am nervous about the government being competition in general. It has elements of having Judge and Jury in the same office. I would like a mandate that these preferred shares need to be sold off within a certain time frame. -Crip

A question for the group, but first, a brief story. I have reached out to several friends, family members and co-workers to gauge interest in an investment partnership I am contemplating, similar in structure to the early Buffett Partnership. Interest has been encouraging, though more moderate than I would like with some trepidation due to our current economic malaise. A couple of the responses indicated a willingness to invest but questioned the relative lack of liquidity. “What if I really needed to access the money?” was the question asked. As it turns out, the people who inquired about this would look to have a disproportionately large percentage of the partnership’s assets. Because of this, selling to cash them out could impact the performance of the rest of the partnership. For those of you running these partnerships, is this a concern and how do you address it? I did have the following thought. We could have these folks establish a separate brokerage account which I would control. It would be solely individual money so if they did need to sell, there would be no impact on the others and they would absorb fully the tax ramifications (under the supposition that there would be Cap Gains and not Cap Losses!). We would institute the same 6% - 25% compensation arrangement and could create a simple contract (though simply contract in the US is rather oxy-moronic) specifying the limitations of either party’s actions. So….the question…does anyone have such an arrangement? If so, what benefits and pitfalls have you encountered in doing so? This seems to make sense but, inverting, why does this NOT make sense? As always, thanks much. -Crip

Viking / P24, At least thqat puts me in good company. ;D And Viking, you are spot on with regards to what the team has done over the past several years. It is remarkable how different a release like this looks now compared to the early part of this decade. -Steve

"The ratings of Crum & Forster reflect its role within Fairfax, its strong risk-adjusted capital levels, proven opportunistic underwriting strategy (particularly in underserved markets) and management’s commitment to reduce the group’s property catastrophe exposure to improve overall profitability. Significantly reduced legacy issues, including the commutation of most finite reinsurance contracts and the resolution in 2008 of its largest outstanding asbestos claim, also lends to the group’s profitability prospects going forward." I do not recall hearing that the 2008 asbestos claim was Crum's largest. When was this previously indicated by FFH? -Crip

Berkshire put up $300M and FFH $100M for a convert yielding 10% convertable to the common at $11.40.

Helluva start: http://www.deepcapture.com/michael-milken-60000-deaths-and-the-story-of-dendreon-chapter-1-of-15/ Checking Google Finance, they show that on the 27th, 28th and 29th of April 2009, 100 million Dendreon shares traded. Their stated float is 100.85M. Well, that seems odd... -Crip

Guys, this is a "painting with a broad brush" discussion. Some of you will likely remember Shai Dardashti from the old MSN Board. He's not 25 yet I don't believe but I would wager he navigated through the past year better than most of the folks twice his age. As well, there are plenty of young buck who got their a**es kicked. My point is best summarized by the fusion of knowledge of Martin Luther King and Ben Graham. Judge one's investing prowess not by one's age, or their gender, but by content of their logic and reasoning. -Crip

The "football" referenced above refers to American Football for those of us from outside North America. I coach both of my sons' flag football teams with the "flag" part meaning that there is not tackling, but pulling a flag hanging from the ball carrier's belt is the method with which one "tackles" an opponent. Heck, they'll use any excuse to play football in Texas. Customarily I coach defense but this one game the other coach was out and I had to take over offense. I had zero experience in doing this so it was definitely on the job training. We ran the first couple of plays and got nothing. I noticed that the other coach had his players stacking the line so, with a solid quarterback and one tall, fast, sure-handed receiver on the team, I opted to go long on third down. Touchdown...money in the bank. The next time we had the ball, the other defense was stacking the line again. First play...Long pass. Touchdown...money in the bank. Getting ready for the conversion I told the boys "Hey, here's a lesson for you. If you are in a fight and the other guy is covering his face, hit him in the gut. If they stack the line all day, we'll throw long all day." Sure enough, the next time we had the ball there were two safetys about 20 yards down field. We ran with some success but the next time they stacked the line, I called an audible for the long pass. Touchdown...money in the bank. Why the story? Fairfax is down to $248 for no earthly reason that I can see. If Mr. Market is short-sighted enough to take FFH down lower, I'm dropping deep and going downfield again. Touchdown...money in the bank. -Crip

Guys, try Dallas. I relocated down here a few years back and US$100/foot is certainly not unheard of for a middle or slightly upper-middle class area with a 30-40 minute commute. I have seen close to $80 here and there for a relitively new home which need a little work. Foreclosures are less. Dallas has some crime and the occasional tornado issues (half a dozen folks within a block of my house lost some or all of their fences a couple of days back), not to mention some pretty significant AC bills in the summer time (it is 79F/26C as I type this at midnight). Not bad if you can deal with Dallas Cowboy fans...you can even catch Hockey Night in Canada on the NHL Network! -Crip

I'll try to keep myh postings regarding the hockey, football or good whisky to a minimum. ;) -Crip

Mungerville, Would there be logic in your brother financing his home purchase, at least in part, now to lock in lower interest rates. Presumably, if he can finance 50% locking in that rate, when inflation "hits" and rates increase, his cash yield will pay for the financing costs and then some on his mortgage. I understand that the cost of housing will be lower then, but buying the home with 50% or so financing does give a bit of a hedge. -Crip

Adding to the above, FFH now will have more interest income (current munis vs. the treasuries last September) and a harder insurance market now (especially for ORH). If your point is that FFH's value has increased in the past 8 months whereas the price has not, I would tend to agree. I am tempted to buy more at these levels, even though FFH accounts for close to 30% of my investment accounts. Further price declines will, eventually, make it a no-brainer to buy. -Crip

Happy Birthday, Sanj... -Crip

"Bloomberg have covered our recent research concerning Warren Buffett's Berkshire Hathaway poor performance versus gold in recent years. Buffett is the most successful investor in the world but his lack of diversification and almost exclusive focus on equities may bring further pain to his shareholders in the coming years." This looks to me to be propaganda with a pinch of "fear" added for good measure. Years ago there was a business channel in Chicago (WCIU, Channel 26) which would cover business news and other investing-type features for much of the day..."The Stock Market Observer" it was called I want to say. A couple times per week they had a 2-3 minute feature from a precious metals broker in the area who would talk about precious metals. I kid you not, EVERY TIME he was on the air, he would end his little speech in a bland monitone "...there may be no better time to invest in gold". Not one single event would change this assertion...ever. It was pure propaganda. Over time, Gold has underperformed in the Long Term. If someone can deftly trade in and out of it for a profit...great, more power to you. I'm not that smart. -Crip