Valuebo

Thanks for the charts one-foot-hurdles! I'm from Belgium and try to persuade friends and family on a weekly basis that real estate is expensive here. Somehow there rationality goes out the window when it comes to owning a home or even buying it as an investment. Any chance you can link the complete presentations?

Have fun: http://icbit.se/futures I know nothing about futures so dumb question: Wouldn't those exposure me to unlimited losses if bitcoin skyrocketed?

Didn't his inability to invest more come from the fact that he was on the hook for those puts if things got worse? How does an individual get hurt if they just buy some OTM puts to protect their portfolio for when the market crashes? If really wanted, It can be a reasonable hedge (for a fraction of the portfolio) when you go for stocks that have a long way to fall in a market decline, think Linkedin, amazon, .. but a basket approach is probably wise. I prefer this with 100% long exposure compared to 60-80% long and 20-40% cash. Generally I wouldn't hold cash or put options and just go 100% long but US market level is slowly making me nervous. Thanks. I'd bet that almost anyone at a certain corporate level (upper management) is good at manipulation, part of the game. Knowing this it is not surprising that he is as well.

Any put options out on Bitcoin?

Question: Do miners create any real value by mining and is it equal to their payout in bitcoins or not?

I think it's highly unlikely that they don't issue a dividend? And yes, you can't call Ffh cheap atm relative to others.

Haha thanks for sharing ValueInv.

This I don’t understand… If you know better valuation models, I mean models that from 1948 until 2013 have a track record of predicting stock market returns better than the ones on page 8 and 9, very well then I would like to see them… But I don’t understand how they could lead to different conclusions… Once again, either the data are flawed, or this time is different. Gio The question is whether those are indeed predicting stock market returns or by chance doing (close to) the same. Those kind of charts tend to work until they don't and guys like Hussman will dig them up to prove their point. So NO, this is not a matter of flawed data or "this time is different". This time is only different in the way that those models don't correlate with stock market returns anymore, which can have many reasons and not per se because Mr. Market has gone irrational.

+1

Gio, I'm constantly reminded of 'Everything is obvious' while reading your comments. The part on predictions in complex systems comes to mind. Or the part where Watts talks about research that has proven that experts are no better at predicting historical events than a simple algorithm or average people (in fact they did worse than both if I'm not mistaken). These things come to mind because I just read the book but it really is relevant to the discussion (and many like it) IMO. I think you'll enjoy it a lot! Btw, how are those guys at ECRI doing nowadays? :D

Congratz Packer and Norm! Packer, I knew you had a stellar 2013 performance so far but I had no clue your long term record was this good! Very impressive. Thanks for your time and insights, I truly owe you!

I think it's very hard to take any action based on things like things like "cocktail theories". These are the types of anecdotes and rationalizations that gets everyone to nod their head when they read the book that explains, after the fact, how or why such and such crashed. These anecdotes fit nicely into the story, but are only loosely correlated with individual returns. If I can tell that something is cheap, I should buy it. If I can't, then I shouldn't. After the next crash, I'll be sure to order the Michael Lewis book. ;) +1 That's exactly why I recommended Gio to read 'Everything is Obvious". I've stopped reading "basic" investing books that basically rehash old wisdom. All you need is 1-2 good foundation books and then focus on books on behavioral finance, psychology, ...

Gio, go read Everything is Obvious fast! ;) I think it's highly relevant to many of the questions that you/we are all having. http://www.cornerofberkshireandfairfax.ca/forum/books/everything-is-obvious-duncan-j-watts/msg56452/#msg56452

They all suffer from it. Hell, Buffett and Munger suffer from it. Biases are generally not something you can unlearn. But you can probably get a strong understanding and insight in it, if you put in enough time and practice. I guess you can at best temper the effect biases have on you. Look at how we all look up to guys like Eric. Clearly he's very bright, talented and better in control of his emotions than most people. But in the end it's just a numbers game. Most of those that have fallen won't feel much for sharing how badly they have done. Even if they had a lot of great investments before they went bust.

http://youarenotsosmart.com/2013/05/23/survivorship-bias/ Good and highly relevant article on survivorship bias. Hope you guys like it as well.

Can you explain why you believe this? Tia

Oh, you don't get paid in America while getting your PhD? Here in Belgium you generally get $2500(+)/month during the time you get your PhD. The difference! I'm completely shocked by the willingness of people overseas to take on serious amounts of debts to get a degree. I almost fell I wasted my time getting mine and aside from opportunity cost, books etc and 500€/year it was free! I agree whole heartedly with this. If a.person likes/loves practicing law then necessity will breed invention. This young lady who writes this blog was offered a job in something related to personal finance because someone saw her potential on the blog. http://my-alternate-life.com/ She has no formal background in the topic; i.e certifications, education. A friend of mine I met wanted to get into value investing as a profession. He moved to Toronto, got an unrelated job crunching numbers at a mutual fund shop. He produced numerous very pro analyses and basically pestered local value shops. He got a job. I personally think that living at home, and refusing to relocate stifles the creativity/ desperation needed to push forward. If she is still single, she needs to upset the apple cart, move to a place that needs lawyers, and get on with it. I would guarantee a positive outcome. Being in real duress unleashes creativity - all assuming no mental health issues or addictions. On the other topic: A marriage/long term committed relationship is also a business relationship. Couples who dont treat it as such, have problems. Not romantic but true. The best way for her to meet a good partner is also the same as above. Unless your George Costanza, of course. I am not talking about gold digging BTW, just a stable adult relationship. Great post, thanks. ++

yes I think I mentioned I was just showing the stocks based on nothing but how they looked 5 years later on a chart. I didn't say it included or didn't include anything else. I would guess most people would assume that dividends were separate. No need to take this the wrong way, I read your post. I just don't get the purpose of your post, especially if you don't include over half the return on one of those stocks.

Mentioning LRE without dividends? Far from accurate!

I think you underestimate the ultimate effect of BBRY going to zero or even ending up at the current price. Aside from that, I also believe that the cost of the "mind share" that the BBRY-position possesses in PW's mind is an intangible that is quite high. In hindsight, all that capacity could have been used better elsewhere. The same sadly goes for the "hedges". I understand the board's reaction. It's not so much this BBRY debacle on itself but the fact that it's a symptom of what has been going on these last years. Or that is at least the perception. It is starting to add up and people get fed up. See Cardboard's "summary": http://www.cornerofberkshireandfairfax.ca/forum/fairfax-financial/ffh-at-multi-year-high/msg139595/#msg139595

http://www.bloomberg.com/news/2013-11-04/best-stock-market-since-1997-seen-with-s-p-500-year-end-momentum.html Guess we'll have to duck for cover when market strategists soon call for a 10%+ gain in 2014. :-X

Well, it is just a present discounted valuation… That’s all! No idea of true IV here… Anyway, it would be much higher! tombgrt, it is just what they do: they wait, and wait, and wait, until the odds suddenly become so much in their favor… I am not saying the waiting is for everyone… Far from me… I just tried to quantified, to put some numbers on they way they operate. And came to the conclusion that it is possible to have great financial success that way. And let me add this: I think it is a very safe way to achieve your financial goals. To be very conservative, until people around you lose their mind… it has worked many times in the past, and I guess it will work very well in the future as well. giofranchi That is not valuation but random speculation of what might happen and rationalizing your speculative thoughts by saying that this is what they do, "waiting". They didn't wait these last few years but made a macro bet (it was more than just protection imo) that has cost shareholders a lot of money. If the markets keep pushing higher and if they get hit by a big cat next year, they will absolutely have lost at least half a decade of possible value creation. How is that for a present discounted valuation? Assuming something about the future and then extrapolating the possible returns is just not possible in any accurate way. They are conservative in the way that they have to be in part because of Fairfax' leverage but the question is whether it has to be so aggressive. Buffett was likely smarter by not fighting the market and simply buying businesses that generate cash flows that over time provide the best hedge for all kind of circumstances. If Buffett was in Prem's shoes, he would have at least admitted that he might be wrong. I know, hindsight and all that. In any other parralel universum Fairfax could have been the best performing stock. The question is whether they made the right decision in terms of likely possible outcomes. Honestly; why do you believe this?

Hi nwoodman, I will let you know what I call “My 7 lean years model for FFH”… don’t tell anybody, please! ;D ;D ;D Ok, we all know that FFH increased BVPS by 146% during the 3 years of 2007, 2008, and 2009. That equates to a 35% CAGR in BVPS. So, let’s just see what will happen if two more cycles of 7 lean years + 3 roaring years will unfold. I have assumed in my model that FFH doesn’t grow BVPS at all during the 7 lean years, then increases its BVPS at a CAGR of 35% for the next 3 roaring years. 2013 has been the fourth year of the 7 lean years that will go on until 2016. 2017, 2018, and 2019 will be the 3 roaring years. Then from 2020 until 2026 we will experience another 7 lean years. Finally, 2027, 2028, 2029 will be the 3 roaring years that close the second and last cycle. As you can see in the files attached, with these assumptions BVPS will grow at a CAGR of 12% for the next 16 years, and that equates to a Present Value of Equity equal to 1.54 x BVPS at 2013 year end. You might think I must be joking, but this model of mine follows Mr. Munger’s idea that “you must do very few things right in your whole career, to achieve great financial results, as long as you avoid too many stupid things”. And that’s what great financial minds past and present have always done: to have ready cash, when everybody else is panicking. Even though those moments don’t come that often, I think you should plan and prepare for them. And that exactly what FFH is doing. giofranchi Wow. So we just randomly extrapolate the last 7 years into the future and that's it? How is this analysis to determine IV?! Fairfax is lucky there weren't any big cats or BV would have been under $300 as Uccmal suggested.

I'll try it decently in excel tonight. Amazing that some are capable of doing this without paper! I don't think I could do it without paper even if you gave me a day.

Really liked this post here: http://philosophicaleconomics.wordpress.com/2013/10/25/margin-debt/ Again shows how we are hardwired to see paterns everywhere while they might in fact not really be there.