Crip1

For the first time in years I am home sick today which affords me the rare opportunity to watch CNBC. It's been quite a while since I've tuned in so changes, which have been gradual to those watching every day, are more pronounced to me. That said, there are two things that pop out at me: * It's about 90% entertainment and 10% content...it used to be roughly the reverse of that. Sad. * Jim Cramer is a tool. He didn't even say anything to really bother me, but his smug attitude coupled with him "forced laughing" at any comment he makes where humor is attempted are all annoying. I can see how his shtick will appeal to some folks, but the amount of adults who follow him is truly bewildering to me. -Crip

Two separate thoughts: 1) Ross, thank you for taking this on. I really like the concept and will be very interested to see the results. There have been numerous suggestions from other board members on how to take this forward; I would only add that since this is your “baby”, feel free to do what you want. 2) I am a little surprised that FFH is leading MKL and, to a lesser extent, LRE. On a few FFH threads there is call for FFH to be more like MKL and/or observations that FFH is slowly morphing itself into a company more closely resembling MKL (higher focus on underwriting, less leveraged, more non-insurance businesses, etc). This suggests that MKL is the more evolved of the two companies. If so, then why would FFH garner nearly three times the votes of MKL? Valuation maybe? This is not a criticism of any voting nor is it campaigning for MKL. Candidly, if given X about of dollars and told that I have to invest all of it in either FFH or MKL, I would struggle with the decision. I just find it somewhat unusual. Looking forward to watching this for the months/years to come. Thanks again, Ross. -Crip

No matter how qualified the next generation is, I am quite critical of nepotism. Obtuse, I hear you, loud and clear. In my professional life I am forced to deal with that to a mind-boggling extreme. A couple points to consider: * Nepotism is really little more than an individual looking at a situation emotionally (I want my family member to do well) or doing so objectively. * Prem has shown in the past to be objective in thinking freely admitting his mistakes and tends, IMHO, to base decisions on facts as opposed to emotions. * Nepotism is wrong as is reverse-nepotism. Always, one is best judged by the content of their character, their work-ethic and their intelligence. A family member may or may not have these traits. I guess what I'm trying to say is that we should not automatically deduce that, should Prem's son somehow be brought into the mix, it's the product of nepotism. Considering these, I would keep an open mind. -Crip

I figure that if stocks crater, Fairfax will just cash in / take off their stock hedges. But, I don't think it's likely they will significantly increase their allocation to stocks as a percentage of their portfolio. What do others expect? Agreed, 100%. -Crip

I can't remember where I read this (someone on this board likely did and can advise), but the quote at the beginning of this thread reinforces the same notion, specifically, that entrepreneurs are not so much good at taking risk as they are good at assessing risk. For some reason, entrepreneurs have been portrayed as swash-buckling gamblers who, against all odds, prevail. This is very "romantic", I reckon, and is patently not true. If this group was given the opportunity to invest $X where one had a 50% chance of returning 4 times X and a 50% chance of losing it all, we would take that bet, every time. Life does afford those opportunities but does not advertise them. It requires an individual who can see this, assess it, and then have the wherewithal to make that bet. Mr. Pabrai states in his book that he likes the "heads I win, tails I don't lose much" proposition, and we all would. He is just better at identifying those opportunities than most of us (present company INCLUDED) are. -Crip

I find it amazing that a person can put their last penny into their 20% down payment, walk out with a 30 yr mortgage based on their income, and be 65 years old. Are they going to work until they are 95? I work in the mortgage business in the US and feel it best to clean up some misconceptions. Eric's scenario is not wholly correct. Yes, someone who is 65 can get a 30 year loan provided the income/credit profile is acceptable. The irony is that a lender cannot use common sense that the borrower will almost certainly NOT be earning the same income 15 years hence, let alone 30, as that would be age discrimination. The part I will take issue with is that they would be hard pressed to get this loan using their last penny as reserves (assets AFTER the loan closes) are required. Now, if this same person wanted to only put down 10% thereby holding the remaining 10% in reserves, and they were OK with paying for mortgage insurance, then they would be golden. The key term is "common sense" or the relative lack thereof employed by the mortgage industry. We have had loans which we've needed to decline for nonsensical reasons. Example, borrower A has a credit score of 660, is putting down 3.5% and will be paying in excess of 40% of his monthly income towards his housing payment. Borrower B has a credit score of 740, is putting down 25% and will be paying 20% of his monthly payment towards his housing payment. Borrower B also has liquid reserves such that he could make his housing payment from savings for 110 consecutive months. Borrower A is approved, Borrower B is not. Why? Borrower A has multiple credit lines (mortgage, credit cards, car payments, etc). Borrower B has only a mortgage and one other credit line. Fannie Mae states that the borrower needs 3 credit lines. So, the solid credit score, substantive down payment, high income, excellent asset (reserves) quality and the fact that he has not had a late loan payment in 10 years was not enough for Fannie Mae to approve this loan. It is nothing short of insanity. Common sense is discarded in favor of guidelines...it is maddening. Now, I will say that the vast majority of loans we've done...make that vast VAST majority of loans we've done in the past 4 years, are going to perform. And, the vast majority of lenders out there can say the same thing. Individuals getting loans now are ready, willing and able to repay...I have little doubt. But, the collateral damage is that there are well qualified folks out there who, for whatever reason, do not fit into the neat little box that has been designed by the industry, are either unable to get a loan or have to go through paperwork-hell to get one. -Crip

Well, Writser, you may not be at the top of the author's list, but, seeing as this group tends to be Long-Term, value investors, you are definitely at the top of our list! ;) -Crip

Richard, I'm going with JEast on this one. My father-in-law who is a very wise man (and worked for a company which is now part of Markel) said it best: "Experience and intellegence are additive...drive is a multiplier." My experience compels me to agree with this. Listen, we will all agree that an intellegent, experienced person with drive/energy is the holy grail when hiring. But, I've worked with really smart people who have mediocre energy, and high-energy folks whose IQ is no better than the average Joe, and I'd take the latter over the former in a heartbeat (assuming equal amounts of inegrity/character/attitude, etc). While not a hard and fast rule, those who are intellectually gifted tend to expect more from their employers, tend to be prima donnas and tend to be hired away. The nose-to-the-grindstone folks give more than they ask for and stick around. The work ethic they posess is infectious thereby making the whole team/department better. Those who are not afraid to "get dirty" get things done. Those who work hard figure out ways to do things better. Give me a group of well-managed ass-kickers, and I'll give you results... JMHO -Crip

I don’t disagree with the posts pointing out that there is an element of belly-aching among fund managers whose AUM, and subsequent fees, are such that said managers are not able to afford the 2013 Mercedes. It’s a sad fact of life that an excellent money manager who is mediocre at marketing is likely making less money than a mediocre money manager who is excellent at marketing. I’d add that it’s not difficult to look back at any time period and offer spot on advice on what one should have done. -Crip

Full Disclosure: I've not read The Halo Effect nor the thread related thereto. I did read Good to Great and, bucking the trend, liked it very much. Will look up The Halo Effect thread and review before posting more. -Crip

Years ago I worked nights and part-time during the day which allowed me to watch CNBC quite often. For years, however, working days I've not done so for a variety of reasons, most "lack-of-time" related. This morning I need to take my son to orientation at school so I am working from home in the morning before I depart for orientation. For the first time in years I've watched for about an hour and please allow me to tell you all of the useful information received over that hour: Seriously, it's remarkable how much time, effort and brain-power goes into producing a news-related televison which gives absolutely no useful information whatsoever. Again, Jim Cramer is on this morning so, really, how much can one expect? (BTW Jim, the incessant use of personal pronouns is really annoying) But, seriously, it's remarkable how much the talking heads seemingly like to hear themselves talk in a self-promoting and/or psuedo-entertaining way as opposed to actually imparting useful business information. Does anyone really care about the lock-up period of Facebook insiders besides Facebook insiders? Another tendency is the use of forced laughter in attempt to display to the viewers "Look how fun and entertaining we are". Perhaps it's a reflection on media or society in general where, at least in the US, we seemingly prefer sensationalism and/or entertainment as opposed to information. Irrespective, the last hour was an absolute waste of time to watch CNBC, it's disappointing. -Crip

That's pretty cool...

Sanj, I was planning on starting a non-investing thread on this subject next January but will offer a sneak peak now. As a value investor, real-world stats and case studies resonate more than marketing gibberish ever can. With that in mind, I’ve got 6 months of data right now to share as shown below. Full disclosure, I’m in my late (really late) 40’s and average as it relates to athletic ability and overall health. I’ve been dieting for the past year or so but really tracked my exercise closely for the past 6 months, since January 1. If we assume that adding weight results when calorie intake is greater than calorie burn and, conversely, losing weight results when calorie burn is greater than calorie intake, there are two ways to lose weight…reduce calories or increase calorie burn (exercise). For years I’d gone the “reduce calorie” route as it was effective for me. However, as the years have advanced, simply reducing calories has had less and less effectiveness. Getting old sucks. In tracking the past 6 months, I’ve logged almost every workout on a spreadsheet, tracking and calculating the calories burned with almost every workout. There are many, many ways to calculate the calories burned but I’ll simply say that the method I’ve used has been on the conservative side. That said, here’s the math: Since January 1, I’ve lost 12 lbs. Since January 1, I’ve exercised (combination of running, other cardio and weights) for a total of 68 hours (2 hours, 37 minutes per week) which has burned between 35,796 and 59,660 calories depending on how it is calculated or, when subtracting the amount of calories I’d have burned by simply sitting (reading, watching TV, etc) results In 29,782 to 53,646 net calories burned. Assuming that one lb. of bodyfat is lost with every 3,500 calories of effort, the data suggests that my exercising has caused between 8.5 and 15.3 lbs of weight loss. Let’s take the low end to be conservative…of the 12 lbs I’ve lost, 8.5 lbs or 71% of my weight loss can be attributed to exercise. Wanna win this bet? Exercise and hit it hard! Good luck. -Crip

Always loved Munger’s "Bullshit" quote on EBITDA. As we know, Charlie’s obviously an intellectual but, rather than ascribe a long-winded, well thought-out intellectual explanation as to why he feels that EBITDA is not a valid metric, he simply dismisses it not as folly but as a matter of deception. If one is attempting to "bullshit" someone, the bullshitter is changing/obfuscating facts rather than just being misguided. Eliminating the interest and tax components of a company's expenses makes no sense. Think of two companies, moderately to highly levered, whose earnings, depreciation and amortization (and even maintenance CapEx) are identical. If company A has to pay a higher interest rate and/or is subject to higher taxation (due to geographic location, structure, etc) than company B, they will have the same EBITDA, but company A will have less, perhaps far less, cash with which to acquire businesses, develop new businesses, invest on "growth" CapEx and/or pay dividends. The fact that they have the same EBITDA but vastly different cash generating capabilities suggests a major difference in value, and suggests the lack of usefulness of EBITDA. The article has 30+ pages on why the author feels that the metric is invalid, where Munger says it in one sentence. That's one reason why Munger is who he is...the ability to quickly separate the world into useful information (and then focus on it) and bullshit (give it no other thought). -Crip

My professional business is mortgage lending, primarily to individuals on purchase transactions in 15 states. I state that in order to make clear the glasses through which I can see the Real Estate Market. That said, a couple of points: * Real Estate markets are, in large part, localized. I live in Dallas which has been quite stable for the past 6.5 years since we moved here. My old neighborhood in Chicago, however, has not fared so well. The same model home that we sold before moving here is LISTED for 20% less than we SOLD our home for...suggests a 25% decline, more or less. And, this home has been on the market for a few months suggesting that homes are not flying off the market. Apparently, the market in suburban Chicago is not enjoying a resurgence. My point is simply that individual marketplaces are often unique unto themselves. * Market data is, my nature, a rearview mirror. Most reports have been showing a nationwide leveling out of prices/activity for the past several months. The investor money which is apparently coming into some marketplaces (like So Cal, according to this string), will likely cause the numbers in coming months to improve. * Real Estate appraisal, in large part, is akin to market data as it is a rearview mirror. It's interesting to note that the real estate markets are, almost across the board, in better shape than 3 years ago. However, we are encountering more instances of homes not appraising out now than we did then...that's a sign of an appreciating market. * Now, looking into a crystal ball, where do we see things going from here. First, we'll assume the overall economy will be relitively unchanged for the next few years. Second, as stated here, the marketplaces indicated herein seem to be driven by investor activity. Investors have the benefit of low interest rates (low costs) and increased demand (people have to live somewhere, homeownership rates are down and it's STILL getting harder to get a mortgage loan for John Q Public). Furthermore, investors are not seeing other areas where they can put their money for attractive return as bonds are also yielding unacceptable returns. The question is...what happens if and when interest rates rise? First, investors have higher costs so, all things being equal, they will bid less on the existing inventory. Second, there will be fewer homeowner buyers since higher rates will force MORE buyers OUT of the marketplace. The double-whammy of fewer buyers will, I fear, tip the supply/demand law towards excess supply and, again, will stagnate or reduce pricing. The certainty of this, as is the timing, is totally unknown, but it suggests to me that "flipping" will soon be out of vogue but landlording will still work out for those who are good at it. Is anyone here from Georgia? I kid you not, half of the loans we do in Georgia have not appraised out this year in Georgia. Agents are telling us that appraisers are out of touch with the market. I can understand that, but also know that agents have a vested interest in seeing things through rose-colored glasses, so I take that with a grain of salt. Any other observations? -Crip

I'm in the same boat with you on this...not a lover or hater or Cuban, but love the way he made Skip Bayless look like a rank amateur. -Crip

Full disclosure: I'm in the mortgage industry. Reagrding the refi, I completed a refi in the fall. After looking at 30 year fixed (lower monthly payment but extended my loan another 6 years), a 7/1 ARM (too much uncertainty of my financial condition in 7 years, not to mention the crap shoot that is trying to predict interest rates 7 years from now), 10/1 ARM (Similar to above, but with 3 additional years to pay down principal), I went with a 15 year fixed. The payment is higher, but with all things besides Income Taxes factored in, courtesy of my "super-size" spreadsheet, it takes 15 months to break even, then I'm ahead of the game...21 months if you want to include taxes. The rate on a 15-fixed was very close to a 10/1 ARM and within reason of a 7/1 ARM. That 15 years coincides with my turning 63 which seems like a good retirement age since my kids, God willing, will be out of college by that time. Look at a 15 or a 20 fixed, and find a good mortgage banker to work with who can pull rates from multiple investors. I would offer up the services of my company, but this board is about exchanging information, not drumming up business. Quick note about "Big Bank" vs. "Small Lender" pricing. The way most Big Banks work (Chase, Wells, B of A, US Bank) is that they have a "war room" which spits out rates/pricing to their internal marketing channels. These channels then add their required profit margins and send out pricing which ends up a the desk of loan officers who then will quote rates to prospective borrowers. We are a correspondent lender, meaning that we close the loan in our name and then sell to Chase, Wells, Etc. If the Correspondent channel within a big bank is relatively busy, they will add a heftier profit margin so that they know that the volume they receive will be solidly profitable. If a particular channel is not busy, they will lower margin to bring business in the door so that the folks earning paychecks are being used. This changes daily. So, the blanket statement of "rates are bad a big banks" is not 100% true, but I know that we've beaten a locak Chase branch with a Chase product, multiple times. I also know that we've been beaten by Chase branches in the past as well. The change happens pretty often so getting a Loan Officer who is trustworthy, who will work for you and who is at least reasonably knowledgeable is your best choice. Finally, the industry is completely insane right now. We had to decline a loan of a guy who had very good credit, about 10 years of payments in savings (reserves), was putting down 30%, had debt ratio of less than half of what was required and had not made a late mortgage payment in a decade. The reason is that he had only two credit lines open, a mortgage and one other. The "rules" state that one needs 3 lines open. I took this forward for an exception and was declined. My response was "So, if this guy had a couple of late mortgage payments, gave away $100,000 and had a 40% cut in pay BUT had opened a credit card account 6 months ago, we could have approved him"...the response: "Yes". I kid you not. -Crip

Oh yea, for sure. I mean some of these goalies that are playing great came out of no where in the last few seasons or in the case of Holtby, he's only played 7 regular season games this year!!! Speaking of goalies playing great, my beloved Blackhawks got Smithed out of the playoffs. Give him props, he saved his best for last as he was unreal tonight. -Crip

Absolutely correct that often times goalies get too much blame, and Robbie Loo may be in that category. That said, Jonathan Quick has done a lot to keep the Sedins, Kessler and Burroughs off the scoresheet. -Crip

I've given up on trying to figure out "the future"...it's in the "too hard" pile. However, it's cool to simply stop being as analytical as we value investors tend to be and just marvel at the technology. The "print" of the woman's head was remarkable. -Crip

Just north of Dallas, TX, USA - Originally from Chicago, IL, USA. Go Blackhawks -Crip

That would be eclipsed by "I'm little more than a self-promoting shmoe who's sole goals are entertainment and garnering ratings I've no desire to provide well-thought-out, useful information. Listen to me at your own investing risk." -Crip

There are several themes to this discussion and to the company itself, so it helps to stratify: Equity Investments: The heavy exposure to equities and concurrent 100% index hedging, as stated, means that shareholders are not receiving the returns on the equity portfolio, but are effectively receiving the delta between Hamblin-Watsa’s returns and the overall market. Based on my knowledge of Hamblin-Watsa, and their historical returns, I am very comfortable with this. Since even the best investors cannot beat the markets consistently in the short term (quarterly, annually etc.), this will occasionally cause results as shown in Q4 2011. We’re not going to hit a home run at every at bat, but I’ll take my chances with Hamblin-Watsa at the plate, so I am comfortable with this. I’m a long-term holder and will be more than happy to take the good with the bad, because over time the good will be much “gooder” than the bad. Bonds: Obviously, the LT bonds are going to lose value once interest rates rise, and LT rates ARE going to rise, the timing of which is anyone’s guess… we know it’s coming. As long as the company has sufficient cash and ST capital to use so that there is no forced selling of these bonds and said bonds can hold until maturity, I’m comfortable with this as well. Implied with this is that the bonds will have a VERY SMALL default rate and, again, understanding the investment acumen within the organization, my comfort level is substantial. International Exposure and Non-Insurance Business: This is the next step in creating a fortress of a company, so I endorse this strategy as well. Time will tell whether the aggregate of these investments will show to have an acceptable rate of return, but the strategy makes sense and I would be of the opinion that the execution of this strategy will be good, considering the team which is executing this strategy. Underwriting: THIS IS THE AREA OF CONCERN! I am tired of hearing “ratio before bad stuff” on damned near every earnings release. The insurance business is the business of “bad stuff”. Yes, I understand that their fixed expenses as a percentage of premium will be higher because they are reticent to let people go, but the fact remains that FFH is not the only company to think this way but FFH’s combined ratios are not only substantially worse than the Chubbs and Markels of the world, but are substantially worse on a consistent basis. Quarter after quarter and year after year we’ve seen this and I don’t feel that FFH management properly acknowledges this. The results are simply unacceptable and I think that Prem should state this AND create and explain a strategy designed to make underwriting a strength of the organization, not a weakness. Maybe the company simply needs to write less business irrespective of how this flies in the face of the institutional imperative? In my professional life, I am responsible to pricing our product (the product being residential mortgages). In the fall we found that our competition was beating the pants off of our company as it relates to rates offered, so our volume dropped considerably compared to 2010. I was NEVER tempted to lower our pricing (margins) to get business (nor was I tempted to reduce staff). I could have had at least 20% more volume in the last 4 months of 2011 had I reduced our margins, but I didn’t. We are sized and positioned to skim the cream and leave the milk for our competition. Maybe it’s a matter of FFH having so much statutory capital that they feel that they need to write business. Perhaps it’s, as Cardboard indicated, that FFH writes policy “…to have lots available for investment purposes”. I don’t know for sure. But, I am confident that if FFH were focus efforts on achieving consistently great or even a good underwriting results, FFH would become an absolute powerhouse of an organization. This may mean shrinking operations, but I think that this should be considered. At bare minimum, I would like to see Prem acknowledge that underwriting results are the biggest issue for the company right now and to state that changes are being designed and will be implemented to address this issue. A man of his integrity should do so. I’ve not sold my position and do not anticipate doing so any time soon as I feel that, in its present form, FFH will outperform the market over time and will provide, at minimum, a satisfactory return. That said, making compelling positive changes to underwriting will virtually ensure said satisfactory return and will afford Long-Term shareholders the best chance of achieving returns far above satisfactory. -Crip

I very much like the idea of accountability / responsibility. Now, instead of looking for responsibility for the financial crisis with potential suspects numbering in the tens if not hundreds of thousands (if one wants to take this down to unscrupulous mortgage loan officers, appraisers, etc) how about if we seek to assess a similar fee to those responsible for the US budget crisis and ever-expanding national debt. Hmmm...who could it be? CONGRESS? After all, that is the group who ratifies the national budget. No blaming Real Estate professionals or amphedimine-popping traders, it's our elected officials. How does that sound? -Crip

BRILLIANT!!!!! I was down 1/2 of 1% for the year, a strong December helped. -Crip