Crip1

FFH - 30% MKL - 20% ORH Preferred - 10% BRK - 10% JNJ - 6% LUK - 5% WFC - 5% Cash - 2% Other (spread among 7 smaller holdings) 12% My current delimma is whether to sell off some of the smaller holdings and use the proceeds for undervalued WFC/FFH or for some druy powder. -Crip

Ben, Not speaking for Mandeep here but it was certainly not necessary to apologize from my perspective. Reiterating, when asking questions I like the idea of understanding his decision-making process. As we all know, Buffett's knowledge is vast as is his ability to process that knowledge. But he has always proven to be able to filter out the non-key factors of decision making and focus soley on the key factors. I would like to understand this more. Rabbitsrich, You have two good points. We'll see if Berkshire (and FFH for that matter) bought more WFC in the US$10 and below area. -Crip

I think that Mandeep asks a great question. Presumably, Buffett knows his holdings much more intimately than he knows non-holdings. So, if you consider that he held his larger holdings for years (WFC, AXP) tells me that they were not overvalued, or significantly over-valued, a couple of years back. Fast forward to now when they have dropped more than 75%, it is logical to assume that they are significantly under-valued. If this is the case, then why would he not buy more of these familiar under-valued firms as opposed to the other deals he is getting? This is not second-guessing as I am sure that there is a reason, but I would love to understand his reasoning. -Crip

In the past 4 trading days AIG has been a 3+ bagger. Not too sure about Citi, but I think that they doubled over the past week or so. There is an attraction to these former heavyweights selling at such low levels, but I really cannot value ANY of these companies so to determine whether US$0.95 is or is not a bargain. They very well may work out, but from my perspective, unless you can value the IV, then it is little more than a crap shoot. -Crip

Granite / Al, Thanks, guys. I appreciate it. "I am really looking forward to meeting you." Al, Prepare to be underwealmed!!! -Crip

Note to anyone reasonably familiar with Toronto. I am looking to book my hotel for the FFH AGM and wanted to know if 475 Yonge Street is reasonably close to Baldelli's and the AGM location. Please let me know. Thanks and take care. -Crip

...and you know what I am talking about... -Crip

OEC, I went last year for my first time and would say that it is worth it. Similar to the Kentucky Derby or the Indy 500, it is something that every value investor should do once. And, not to be morbid, but Warren and Charlie are not getting any younger so if one of them were to pass before you went, you would certainly regret not having gone. -Crip

Scotty, Absolutely, I could not agree more. -Crip

As I understand it, the various insurance companies of AIG are partitioned to a certain extent from the parent as each need to maintain their own capital levels. Those companies, again from what I am understanding from those within the industry, are solvent. The issue with AIG is the boneheads effectively insured many times more debt than actually existed. That is what needs to be propped up. The insurance subs capital was not affected by this directly (though, indirectly, as AIG has been tainted, customers are leaving). I have not heard of the AIG parent selling off any of the subs to raise funds. It would seem to be a classic case of the companies being more valuable to the Prems and Warrens of the world, who do have capital, than to AIG. Full disclosure is that I have only followed this superficially and others will likely be able to better inform. -Crip

Bookie, Go into your profile. You can change the settings for notifications. Not sure if a daily round-up is available, but you may be able to set something up there. I also echo that I am quite fine with this format/board. As I see it, this is a gift from Sanj and I'm not looking a gift horse in the mouth. -Crip

"I think the main problem is not reading their reports. You are just looking at the CR and figuring it speaks for itself. You bitch them out when they explain that the combined ratio is artificially inflated due to strengthening USD, but you don't bitch them out when they explain the CR is misleadingly low from weakening USD. In both cases, they are merely giving you all the information that you need. You call them excuses in 2008. In 2007, you did not call them excuses." Eric, you are right, I did miss that, my apologies for doing so. However, that means that FFH underwrote in 2007 at an adjusted CR of 98. Chubb had an 82 and I want to say that Markel was at 89 or thereabouts. I still stand by my assertion that as an owner of this company, I would like to see management consistently hit the target of an underwriting profit, and the more the better. FFH out-invests their competition by a significant margin, but the best in the industry out-underwrite FFH. It is encouraging to see two strait prior year redundencies factored in, especially considering it was not that long ago when it seemed an annual December event was to receive an announcement of reserve additions. Things are better. There are those who took umbridge when concerns over underwriting were pointed out. I recognize the performance of the company overall has been stellar, but simply piont out that this is an area where improvement would be most welcome. I'll bet that Prem and co feel similiarly. This is key going into 2009. FFH has some tailwinds in the form of a hardening market, ratings upgrades (which would presumably enable them to bid on business on which, up to now, they were unable to participate), and increased statutory capital, which is most certainly the exception in the industry. If they can execute, the combination of underwriting earnings, investment earnings and P/BV multiple expansion from the collective awakening of the investing public will provide some very handsome returns. -Crip

Definitely nearing another purchase point...This is crazy.

Guys, Let's start with a premise or two. I look at investing as "hiring" the management of a given firm to manage the business for the benefit of the owners...a.k.a. me. This in effect makes the management of my holdings my employees. And just like having employees, one looks to evaluate their performance. If the performance of an employee is not up to par, one fires said employee. If the performance of a stock holding is not up to par, one "fires" the management by selling said stock holding. Make sense so far? Along that same vein, when evaluating an employee, one seeks to give an objective evaluation citing the good and the bad of aspects of each employee's performance. Now, obviously, I am not going to send Prem a note with my performance evaluation, as he would rightfully toss it in the garbage if it ever got to him. But, as we are discussing FFH in this forum, I think it vital that we be as objective as possible in our assessment. Now, much has been discussed about Prem and co's character and integrity which, by all objective accounts, is top notch. Much has also been discussed in regards to Prem and co's investing performance which, by all objective accounts has been top notch for not only the past couple years (CDS positions, treasuries sold and munis purchased, S&P Puts, etc), but for the past several years. I do not know of any manager of money anywhere who has outformed Prem and co in the past 10 years....no one, and for that they deserve the accolades which they have received, and then some. Now, turning to underwriting, I feel that this is an area in which FFH needs to improve. I would also bet that this is an an area where Prem and co feel they need to improve as well. Much has been written regarding the Q4 2008 results and adjusting those results so they they look more in line with the Markels, BRKs and Chubbs out there. But to be honest, I do not want to hear any more of "Well, if you adjust for this that and the other thing, the combined ratio is...". FFH needs to take their underwriting performance to the next level, they need to strive to compete (from a performance perspective, not a market perspective) with the MKLs, BRKs and CBs of the world. Through the previously referenced character and investing acumen, FFH has positioned themselves beautifully for this. They have had their ratings upgraded and now have substantial capital with which to write business in what is expected to be a hardening market. An anology is like a team on a power play where a forward takes a cross-ice pass and has a wide open goal...FFH cannot fan on the shot or shank it wide...they need to bury it. Let's not deny this. Of course they past two years were remarkable in terms of perforamnce, no denying this. But looking out 5-10 years, if they can invest half as well as they have but underwrite as well as the MKLs, BRKs and CBs of the world, then FFH will become an absolute powerhouse of a company. That and nothing short of that is the goal. Lest anyone think that I am unfairly bashing Prem and Co, that is simply not true. FFH is my largest holding. I have not "fired" a single share of FFH and may end up "hiring" some more shares if the price dips a heckuva lot more, so I am not down on the company. Underwriting is the one area where they need to perform at a higher level, period. Please, feel free to post any and all thoughts to the contrary. -Crip

I'd rather be approsimately right than precisely wrong.

Markel was at 99% for the year. The underwriting is the absolute KEY for Fairfax, and will separate whether they will be a good company, or a great one. Some may say that they are great now, and I have made a lot of money with them...but the underwriting results are weighing them down something fierce. -Crip

Tooskinny, Perhaps you are being a little sensitive. I do not see anything malicious here by the reporter, but if you are annoyed by a stupid comment, then this would fit the bill. How often does one see a non-bitter $6B lawsuit? The statement is akin to a diver reported to be jumping into the wet water or the hockey player cracking his head on the hard ice. -Crip

I tend to agree with Snailslug with regard to housing prices. Overall as of November closings, we are still seeing an acceleration of MOM price declines in the US, but, there are a couple of factors which, IMHO, will assert themselves: 1) Homes are as affordable now as they have been in years, many years. At some point people will start buying and we'll reach and supply-demand equilibrium with prices becoming static. 2) I do see some signs here and there of increased activity which will not be reportable until 3-4 months down the road (offers in February close in March or April and are reported in May and June). Granted it is anecdotal, and granted that I am not seeing the Real Estate market going ape, but the anecdotal signs seem to be pointing to a bottoming out. My point is that I really do not see a 50% decline from here across the board. Time will tell whether or not I am right. I have no solid opinion on WFC other than to say that the fact that they came through the credit crisis in far better shape than the majority of their competition suggests solid management. -Crip

"I think that the article is a little wrong on housing up here in Canada. Our correction is just starting. I don't know if the avg drop will be as severe as the US averages, but I think price will come down more in Canada. In the Toronto area, sales volume has gone down a lot, but price has not yet dropped much. I think inventory is up from the statistics that I've seen." My knowledge on Canadian housing is, admittedly, minimal. It looks like Canada's economy-based correction is just starting, but so is the same economy-based correction in the US. The issue is that the US has also endured, and continues to endure, a correction based on excess capital providing loans to those unworthy. Bye-bye capital, bye-bye buyers, and the supply-demand curve is thrown totally out of whack. When all is said and done, the Canadian housing market will see a drop, the US will see a plummet, Canada will endure a problem, the US will endure a catastrophy...you get the picture. At least it's warmer down here. -Crip

Tariq, I was not able to read the whole article but based on the first paragraph, I am releived that at least some provision was put into this bill to limit pay. Of course, one wonders about the quantity and size of the loopholes in this bill (if bonuses are capped as a percentage of the individual's salary, then are salary increases permitted? If so, then I'd be wiling to see some pay raises doled out). Also, what of the unintended consequences? It will be interesting to see how this plays out. -Crip

"I too have some concerns with my overall weighting in Fairfax. But it has far outshined the rest of my positions.Do you keep holding on to your winner where you have faith in the captain of the ship or diversify where you don't have the same confidence?" ALLY, While I hate when someone answers my question with a question, I would propose these to you. 1) Do you still feel that FFH is selling for a substantial discount to its conservative intrinsic value? 2) Do you have any other stocks on your radar screen which are selling at a higher discount? I think those are the more important questions to ask of yourself than the weighting issue. Until the YE numbers come out next week, we can only speculate as to the IV of FFH, and therefore, the current discount to IV. Further, with the investments which Prem and co have made over the past year, it is not an easy task to estimate the IV. This is an area where a Buffettism really holds true...I would rather be approximately right than precisely wrong. I do not know the precise value of Fairfax but would presume that it is in the US$375 range at the low end, and likely higher. The key for me is going to see how FFH can underwrite in the coming years. Their underwriting performance has been mediocre at best compared the the Markels and Chubbs of the world. Now that they have sufficient capital, have been upgraded and we are entering into a harder market, the subs REALLY NEED to underwrite up to the standards of their top flight peers. If they can do this, they will receive a double whammy of rapidly increasing BV and will trade at a substantial premium to BV. I recently sold my ORH at $53+ as, IMHO, it is not selling at a substantial discount to conservative IV, certainly not like it was in 2008 when it was in the US$35-37 range. I do not have issues with ORH per se, but the discount to IV was sufficiently low that it made sense to sell. If ORH were to drop, I may reinsert it into my portfolio. I am not selling FFH yet despite the fact that it is my largest holding (and is commanding a higher percentage of the overall by outperforming my other holdings). I may do this with FFH in the future, time will tell. -Crip

From the Blodget article: "Based on a review of the facts we've seen, the case against Chanos and Kynikos is problematic, while the one against SAC is very weak." This whole situation is really bizzare to me. His admonishment of SAC assumes that the information released is the only evidence which is to be presented. This assumption is either irresponsible, niave or completely biased. Would a firm like Fairfax file a $6B lawsuit with only this in hand or is it more logical to assume that they filed with this as only a portion, potentially small portion, of the total evidence they have collected. I would opt, looking at this objectively, for the latter. Quickly now, let's sum up what has become clear in the time since the lawsuit was filed. 1) Gwynn was fired for improper actions regarding his FFH report. 2) Gwynn's original report was factually incorrect by his own ommission a couple of weeks later and his second report (The one where he said that FFH was $2B underreserved as opposed to $4B) has also shown to be wildly incorrect. 3) A noted short-seller had the report before it was published. 4) Spyros Contengious (sp?) has shown to be a slime-ball. Now, if these are the only bullets in FFH's gun, they have some compelling evidence, but likely not enough to have any chance to win a $6B lawsuit against all of the defendents. However, if this is the tip of the iceburg (as I think that it will end up being), then it has got to be a little disconcerting for the defendents, especially considering the dribs and drabs that come out reinforcing nefarious activities. FFH may not get dime one from these folks, but if this curbs such nefarious activity, it is money well spent. -Crip

The long post regarding the ORH preferred has compelled me to contemplate this question. I have both FFH and ORH common but it looks to me that of the three, the ORH common is the least attractive investment at current prices. ORH is selling at about 1.2x estimated Y/E book with is closer to the high end of the historic range than the low end. FFH is selling at a lower (to be verified next week) multiple to BV of, my guess, about 1.1x and will be in for significant gains 3-5 years down the road once their cyclical holdings come back. As I hold FFH and ORH in a retirement account, tax implications are not applicable. Would be interested in the opinions of others. -Crip

My favorite paragraph from the NYT story is: Few are playing sad cellos over the fate of such folk, especially since the collapse of the institutions they run has yielded untold financial pain. But in New York, where a new study from the Center for an Urban Future, a nonprofit research group in Manhattan, estimates it takes $123,322 to enjoy the same middle-class life as someone earning $50,000 in Houston, extricating oneself from steep bills can be difficult. So, the $500K President Obama wants to pay these folks then translates into a little over $200K/year in Houston. Well, I live in Dallas which is like a less humid Houston with too many northerners (myself being a northener as well) and one can live pretty damned well on $200K/year. VERY damned well. -Crip

Looks like others are pretty ticked about this as well...and we were not even among those who lost their butts in his fund!!! The whole thing is really outrageous, even when he finally admitted that he was little more than a con artist/thief, he looked to take the scraps of his billions (million dollar scaps, mind you) and give them to his family and friends, further SCREWING THE PEOPLE HE ALREADY RIPPED OFF. It is clear that he did not feel the least bit bad about stealing, he did not care for the victims, but he only felt bad about having his con-artest machine fail. This is unacceptable behavior for anyone, anytime, anywhere. Hammer...nail...nuts...nice sturdy wall...that's about all you need. I am not going to speak for Al, has he has shown over the years he is adept at doing so himself, but I would bet that there is an element of tongue-in-cheek to his remark. However, there is a kernel of truth to his statement as the adage of "If it sounds too good to be true, it probibly is" rings true here. One thing that I have tried to get through to my kids is that pretty much everyone you meet wants your money...and I do mean pretty much everyone. There is a similiarity between the Madoff victims and early Buffett partners. Warren is obviously trustworthy but how would one know? Warren states that when he looks at a manager he seeks one who loves the business, not who loves the money. Had investors looked at Madoff with such a discerning eye, he would not have swindled to the extent that he did. So, there is come culpability for these investors, and hopefully lessons will be learned by them and by the general public who saw this from afar. -Crip