Crip1

I would opine that "bankrupt" is a bit harsh as that has the connotation of being completely and utterly without ethics/morals. I do not think that Sokol acted in a manor completely and utterly voice of ethics/morals. I do think that he was wrong, that he pushed the envelope too far, but "bankrupt" is too stern a term for me, personally, to desribe his actions. -Crip

My father worked most of his professional life for a major truck manufacturer (name withheld, but at least everyone in the US has heard of them). They operated in four segmen ts...Truck, Engine, Finance, and Parts. Parts was responsible, by far, for more profits than the other segments. During his tenure, several times, parts was the ONLY profitable segment. Selling a truck is damned near a loss-leader. I am quite sure that this firm is not the only one operating in such a fashion. -Crip

Understanding the population of Sendai is upwards of 1,000,000, and the fact that there were smaller towns/cities along that area of the Japanese coast, there seems to be little doubt that the previous death toll estimates of 2,000 or so will be woefully low. New video clips continue to come in which, frankly, look like CGI from a disaster movie...it simply does not look real. Simply said, this is the most epic disaster in our lifetimes. Part of me hates that we are focusing less on the human tragedy (The countless number of sons, daughters, mothers, fathers, friends, etc were taken), but the world does go on, so does the "business" aspect of this as well. The question I have is whether or not the citizens and businesses in Japan have insurance coverages/limits similiar to what one would find in North America? If so, then the losses will be astronomical. -Crip

It's impossible to tell for sure, but I do not think, honestly, that he meant to do this, partially because I can't think that one hockey player would really look to do that to another. And, agreed, this was not a matter of if, but a matter of when, based on the design. It's actually a minor miracle that no one has died yet on one of those. Thought this was intereting, though...it would seem that the Bruins players were all coached to refer to this as "unfortunate". http://sports.espn.go.com/boston/nhl/columns/story?columnist=murphy_james&id=6196160 -Crip

Philippe (Partner 24), as always, you are far too kind. To be sure, my faults are many, as illustrated to me on a daily basis by the wonderful Mrs. Crip! Al (Uccmal), you’ve lumped me in with Cardboard and Bsilly which, while much appreciated, is giving me too much credit. When you and I, among others, spoke over drinks at the FFH pre-dinner orchestrated by JEast a couple of years ago, I remember thinking of you “This guy’s smarter than me, better watch what I say before he figures it out”. This has been an interesting little trip down memory lane, thinking back to the short attack on FFH. Who could forget Martin Luther King Day in, I want to say 2001 or so, when FFH took the huge dive down to the US$40s? This was a very concerning time for holders of FFH, uncertainty was rampant and I, for one, wondered whether or not I had made a big error in sinking a sizable percentage of my retirement assets in FFH. The old Stockhouse board was pretty active then with Sanj slugging it out with Brolgaboy (One of Hempton’s aliases I think) and other bashers on the Yahoo board predicting FFH’s demise. Through this, Sanj, BSilly and Cardboard were the individuals I recall who were posting most frequently, and most effectively. Particularly, BSilly, would calmly, thoroughly and intelligently answer the accusations of Brolgaboy, seemingly daily. BSilly ran intellectual circles around Brolgaboy. This is where I learned the biggest lesson I’ve ever learned in business and investing, that being the importance of character. It was clear that the three lads mentioned above, and others, simply had a higher degree of character then the FFH bashers. There was far more objectivity in their postings where they acknowledged the Crum and TIG acquisitions were far more problematic than Prem had believed they would be, but steadfastly insisted that he was not a crook. This, compared to the bashers who asserted that Prem’s was a thief and a liar, the FFH financial statements were full of holes, and FFH was insolvent and would be forced to close in 6 months…they acknowledged nothing remotely positive about Prem and/or FFH. The character of the individuals involved was crystal clear. I stuck with the character crowd which, obviously, turned out to be the correct move. Buffet’s been quoted that “Somebody once said that in looking for people to hire, you look for three qualities: integrity, intelligence, and energy. And if they don't have the first, the other two will kill you. You think about it; it's true. If you hire somebody without the first, you really want them to be dumb and lazy.” The episode with the FFH shorts illustrates this perfectly…the bashers were not dumb, and were definitely hard working, but they lacked integrity and character. The FFH bashers had the three qualities Buffett described. Associating with such a crowd will, undoubtedly, result in far better results than associating with those who lack one or more of these qualities. I currently manage a small group of people who are rather diverse as it relates to age, gender, religious beliefs and personalities. But, they all work hard, work together and they all tell the truth, and we’ve been pretty successful as a group. Fortunately, I inherited many of these folks and have hired the rest. It’s hard to determine character in an interview, but it is ONLY possible if that is what one is seeking (along with some brains and energy, of course). The importance of character and integrity cannot be overstated. I’ve done this before, but will do it again. My heartfelt thanks to Sanj, Cardboard and the unfortunately reclusive (at least in this venue) BSilly, for helping to teach a lesson which is applicable time after time after time throughout our lives. BSilly, you really should toss out a posting every now and again. Maybe I can get you out of your hiatus by bashing FFH! -Crip

Like 'em all, especially Wayne Knight. Who plays Spyro Contogouris?

Ahhh...the mind of the value investor...always looking for a deal. -Crip

I don't try to put current or near-term values on indexes, but when I look at the 13 or so companies I own shares of, I feel like almost all of them are still a bit undervalued based on current earnings, and think their earnings will be hire a few years from now than they are now. Well, that's exactly what FFH does. They try to find undervalued securities. But if the broad market starts to decline, there's a tendency for everything to drop (but perhaps by differing magnitudes...however, when things get silly, they often get really silly). The hedges enable FFH to continue to seek out undervalued equities while ignoring the frothiness of the broader market. Assuming Sanj is correct, FFH has hedged 91% of their equity holdings. The tendency is to either call that hedging a “bet” as commonly done by our friends in the media (because financial media understands the betting concept) or look at this in relation to quarterly earnings (i.e. “The hedge saved their quarter”, or “Without the hedge, they would have made $X”). A third way to look at it is to say that Fairfax’s near total hedge means that FFH’s equity position will now return their relative equity outperformance compared to that of the overall market, eliminating the “noise” from their returns. Looking at this long-term, in which are we more confident?: The 5 year return of the FFH Equity portfolio or the 5 year return of the FFH Equity portfolio over and above the overall market. Personally, I am more confident in the latter. So, the hedge, while it WILL LOSE MONEY periodically makes sense from that perspective. Additionally, the hedge also protects FFH against a financial storm (pick your duration…10 year, 50 year, 100 year, etc). And…I’m good with this too. Consider at the end of 2009 that Equities were more than 50% of FFH’s book…a 20% decline in the overall market would have cost FFH 10% of their BV all other things being equal, which would have less than desirable effect on their D/E. This way, if there is a 20% decline in the overall market, the FFH BV would decline by 1% all other things being equal, plus or minus the FFH portfolio performance compared to the overall market. In the business where financial strength is paramount, this strikes me as a good strategy. Of course, it is and will be frustrating to see that hedge impair earnings (as it has thusfar in Q4), but the bigger picture is important here. Risk cannot be eliminated, but it is vital to minimize it to any extent possible, quarterly results not withstanding. -Crip

A few facts to add to the discussion: * The compounding effect is magnified dramatically over a longer time period. * The good "analyst" can basically make the math work to support their position. To illustrate the first point, let's be honest, the average investor does not leave their monies with the same money manager for 45 years, not even close. Let's look at the cumulative returns on $1,000 with more realistic timeframes: Quantity - Years Berkshire Berkshire less 2%/20% 45 $4,804,896 $401,723 25 $ 111,015 $ 27,996 20 $ 43,282 $ 14,365 15 $ 16,874 $ 7,379 10 $ 6,579 $ 3,790 5 $ 2,565 $ 1,947 Over more realistic time periods, it is clear that the 2/20 methodology robs far less of the return than 45 years. The author fully was aware of this, but used the 45 years and the good name of Warren Buffett to make his point. Now, for what it’s worth, I happen to agree with the author that the 2/20 methodology is more beneficial to the money manager than the investor, but his example was designed to attract eyeballs AND make his point, not illustrate realistic situations. To further illustrate the effect of 45 years and how a good analyst can make numbers support their position, Buffett’s 25% above the 6% bogey (25/6) methodology is looked at by many board members, myself included, as fair and equitable for all. Let’s see how this analysis plays out over similar timeframes: Quantity - Years Berkshire Berkshire less 25/6 45 $4,804,896 $1,192,055 25 $ 111,015 $ 51,174 20 $ 43,282 $ 23,294 15 $ 16,874 $ 10,603 10 $ 6,579 $ 4,826 5 $ 2,565 $ 2,197 Over 45 years, Buffett would have “robbed’ his investors of 75% of their return in what is arguably an equitable arrangement. This is certainly more advantageous for the investor (and less so for the manager) then the 2/20, but it is clear that using the 45 year time frame, the returns are skewed to the money manager at the expense of the investor. Unquestionably, this demonstrates clearly why many very bright people look to money management as a vocation opposed to being a doctor, engineer, teacher, etc. The most important point is the behavior that these compensation plans drive. Driven by annual return, these compensation plans drive risky behavior on part of the money manager, effectively a “heads I win, tails I don’t lose much” situation (except that continual losses will cause clients to flee). The key is that the investor needs to be VERY AWARE of the money manager’s mentality and character. Will the money manager inappropriately risk the client’s principal in order to attain superior returns/compensation? That is difficult to assess, but is key for investors. -Crip P. S. The bonus plan for Senior Management of Markel is about as good as any I’ve seen as it is based on a rolling 5 year CAGR of book value.

Fairfax Team, Congratulations on your 25 years in business, that is a tremendous accomplishment. I've only been a partner of yours for the past 10 of those years, but plan on sticking around for a long time into the future. A substantive portion of my family's investable capital and a commensurate amount of trust is allocated to Fairfax. My sincerest appreciation for your earning that trust. All the best. -Crip

Misterstockwell, I think you taught your neighbor's son that the best methodology is to ask his neighbor about investment decisions. -Crip

In my sophomore hear, our class had a 6 week investment "contest" in which my group took second place. Foreshadowing of investment prowess? Hardly. Blind luck? Absolutely. I agree with Granite that the tendency of such a contest would be for the participants to gravitate towards whisper stocks, momo, etc. Making it a 4 year deal would be much better as, with such a long timeframe, students would experience rising and falling markets...the practical education would be teriffic. -Crip

At the AGM in 2009, Prem was asked this and, while not outright saying "no", he did state that he much favored businesses which generated investable float. Couple that with, as Sanj said, the insurance circle of competance, I do not see them buying anything outright for a while. When one has a managable ego, one can buy fractional portions of companies and not feel the need to get involved with the day-to-day. In listening to Prem, his ego is obviously managable, so this would look to be the direction in which they are headed. -Crip

Great thread! Working in Supply Chain Management and Mortgage, which would require a long explaination, so I'll get to the personal time. Married with two boys. There's a commonly used term here in the states for those of us who over-acheived as it relates to those whom we have married..."I've outkicked my coverage". Guys all agree, some women do as well! Being within a few years of 50, I've recently started running and working out (Highly recommended...doing so helps clear the mind nicely). It's been a long time since I last did this, but I'm starting to get back to playing music. As a bass player, I was a huge Geddy Lee fan and still am a rocker at heart. With both boys playing football, and living in Texas, football is pretty big in our household. And, of course, as one can see from the icon, my Chicago roots are on full display as I follow (in this order) the Blackhawks, White Sox, Bears and Bulls...and whoever is playing the Cubs! Regarding the shopping thing, I think coupons and sales are the essance of value investing...buying an asset for less than it is worth. Costco is a GREAT place! I absolutely love it when I can use a coupon on an item which is on sale (have gotten some things for pennies on occasion). -Crip

When this was referenced by Fairfax several years back, I was not overly impressed. It seemed like either a "gimmick" designed to look good or an excuse for shuffling under-performing managers who were sacred cows that could not be pushed out on the street. Over the past few years, it's become clear that my original thesis was wrong. Professionally, I've been pushed into a few different silos within our organization. These moves were more a result of need rather than any developmental program, but I can definitely attest to the benefit of this. -Crip

* Jacques Lamaire’s shot from near centre ice in game 7 of the 1971 Stanley Cup Final get by Tony Esposito, a fluke which was the beginning of the end for the Blackhawks that game. (Actually, I heard on the radio that as they did not televise the finals in those days). * Bobby Hull, past his prime but still a hero, leaving for the WHL Winnipeg Jets…it felt like I lost an uncle * Epic battles in the early 80’s between the Hawks and the Minnesota North Stars which did not border on pure hatred, they WERE pure hatred. * Denis Savard displaying skating skills which had not been seen before and haven’t been duplicated since. * Chris Chelios taking one anyone, irrespective of size, giving heart and soul night after night, but never being able to hoist the cup as a Blackhawk. * A rookie named Jeremy Roenick spitting his chipped teeth into his glove to show the official after a particularly brutal cross check, then scoring on the ensuing power play. * Mario Lemieux culminating a Penguins comeback with 9 seconds left from a 4-1 deficit to win Game 1 of the 1992 Stanley Cup Finals. The Hawks were swept but were outscored by only 5 total goals in the loss. I hate to think of how many beers it took to drown the sorrows after game 4 ended. * The once proud and successful Chicago NHL franchise become so irrelevant that they were outdrawn on Sunday afternoon by the AHL Chicago Wolves. Dead serious about that. * A renaissance which resulted in the first Stanley Cup close to half a century. Pardon my indulgence, but this was a long time coming. -Crip

While I have not looked thoroughly, BP has piqued my curiousity. The well documented issues in the Gulf of Mexico are really pounding the price, to the extent that BP ius sporting a yield of 9%. Though this mess in the Gulf will cost them a pretty penny, they have a pretty penny and then some. It would appear highly unlikely that BP will cease to exist after this (Exxon survived the Valdez, JNJ survived the Tylenol scare, etc). It is also highly unlikely that the planet will no longer need oil in the next 5-10 years. So, while there is some downside (Congressional investigations which are, at least in part, US elected officials mugging for the cameras), there is limit to the downside. The price will most lilkely decline further, but the valuation certainly looks compelling right now. The upside? Provided oil prices remain at or near current levels, BP is spewing cash. It may take some time, a 9% cash yield on my investment while waiting is fine by me. Thoughts? -Crip

Jack, From where did you get this information? -Crip

Viking, First and foremost, I really appreciate your sharing your work with the rest of the board. It is very clear and concise for all of us. One thing, though, is that I believe that you need to adjust the formulae in your columns AE and AF in the Canadian Holdings section as they are not consistent with the US Holdings section. Perhaps you are waiting to determine share quantities of the Canadian Holdings from March of 2010? As it stands now, the unrealized change is roughly C$98M of which nearly C$61M is attributable to change to Brick. -Crip

The evidence is only circumstantial (at best), but the coincidence is pretty remarkable. -Crip

Well, that's good news, if for no other reason that the lawfirms involved for the plaintiffs will not receive squat. Also...from the article Watsa, 59, is acquiring Zenith as part of a bet on a rebound in a workers’ compensation market pressured by rising medical costs and falling payrolls. Why the hell does the financial press incessantly refer to strategic moves as "bets"? It annoys me to no end. -Crip

As indicated in an earlier post, I deeply regret that I cannot attend this year, but would offer up a suggestion. Specifically, grabbing a pint (or cup of coffee, or what-have-you) afterwards as well. James said it well regarding "running out of time" so extending the evening to perhaps discuss knowledge put forth by whomever from Fairfax is able to attend would be definitely beneficial. This is a once-a-year proposition so best to make the most of it. Enjoy, folks. -Crip

To anyone who has not gone to the "Fairfax-Sanj-Fest", I would highly recommend doing so. The whole night starting with pre-dinner beers with some board members (Thanks again, James, for orchestrating), the dinner at Baldali's is terrific and it is very cool to hear the off the cuff comments of Frances, Sam and others. The FFH Meeting was quite good as well. Prem is engaging, frank and enthusiastic. I came away from that feeling even better that much of my retirement is being funded on the shoulders of Prem and crew. I did not make it to the MPIC meeting so cannot comment on that. Recommendations: * Make sure that you don't book your flight Thursday too early. I would suggest early evening or maybe even staying until Friday morning. I had to leave the FFH meeting too early (had a connecting flight and wanted to get home before midnight) and missed the after meeting reception...would not make the same mistake twice. * If you have not visited Toronto previously, stick around for a few days...I really like the city (Hockey Hall of Fame is worth the time) as well as the variety of ethnic dining experiences. * The well-known quip of "God gave you two years and one mouth, so listen twice as much as you speak" applies, but I would recommend listening about ten times as much as you speak...there is much to learn over these few days. My job and other issues dictate that I cannot make it up there this year, but I will try for 2011. Have a great few days, all. Take care. -Crip

Let's marry a couple of thoughts here. First, ubuy: "I "think" I am a pretty good investor however I KNOW that both Prem and Warren are GREAT investors hence my willingness to deploy a portion of my capital in their direction when it appeared that I was paying little for that expertise." Next, bookie: "You can get all the education in the world ( and it helps) BUT you can't teach common sense." Ubuy's post points to a key componant of investing which is humility. Having one's ego is check is part of emotional control. My employer is a very smart man, and has been quite successful in business life, but is not a good investor. His ego does not allow him to look at a Prem Watsa and say "I want to let this person be a steward for my capital" as he feels that he can and would do more with it then Prem. He feels that he is smarter than most anyone else and his ego is way out of whack. The acknowledgment that there are others better than you at investing/managing is common sense, really, as technically only one person can be the absolute best at anything. This is not a difficult concept to grasp, but there are those out there whose ego will not let them grasp this. I've said this before a few times but look at the gurus that are followed on this board...Buffett, Wunger, Watsa, Berkowitz...all individuals who are quite humble (despite Charlie's blackbelt in "chutzpah"). The members of this board are much more likely to demonstrate a high degree of humility then the Cramers of the world. Humility, really, IS common sense. -Crip

Ubuy, This discussion has interested me for quite a while to be sure, and I tend to agree that there is an "IT" factor, but would opine that the "IT" factor is more a confluence of traits rather than a single gene, and would comprise the following: * Numeric Prowess - Investing does not require one to understand differential and/or integral calculus, but one does need to be comfortable with numbers and needs to be able to analyze numbers. The example is that my wife can balance a checkbook, but she is not wired to be a numeric analyst. * Intellectual Curiosity - There needs to be an internal drive to understand how businesses function. This drives the would-be investor to be educated in how companies work, how they make money, and how financial statements reflect (or, in some cases, DON'T reflect) the economic reality of this. * Emotional Control - Buffett often cites this as the most important factor, and who am I to argue with him! It is not easy to see the price of an investment plunge, whether it is company stock, mutual fund, etc. Peter Lynch opined that more investors LOST money on his fund then MADE money, despite an absolutely stellar run. This is because as the NAV fluctuated, many "investors" became scared when the price declined and sold at a loss. Fear overcame analysis. * Drive - A very wise man once told me that knowledge and intelligence are additive to one's overall success in business, but drive is a multiplier. An individual with mediocre education and mediocre "brains" but superior drive will be more successful than one with superior education and "brains" but mediocre drive. Bill Porter (http://en.wikipedia.org/wiki/Bill_Porter_(salesman)) clearly demonstrates the levels of success based on high amounts of drive. Conversely, a former co-worker of mine, named "Bill", was a Masters degreed Mensa member who waited tables. If one were able to assign a numerical "score" to these traits, successful investors would have differing "scores" for each but the ending sum/product of these scores would achieve a certain level. Of course, there are some outliers like Buffett/Munger who score at or near to top in ALL factors but most of us are only mediocre in one or two of the factors listed above. The sum/product still allows for a level of success, but not the "off the charts" success of Warren or Charlie. -Crip