TwoCitiesCapital

This is what I'd expect as well. A mark up to the value of their offer, the consolidation of gains/losses through the income statement going forward, and a static carrying value on the balance sheet.

Maybe in wrong. It's hard to understand the scale of billions, but after watching videos from Georgia, Florida, and the Carolinas - $5B strikes me as low. Bridges, interstates, critical infrastructure, and entire neighborhoods are gone across the three states. There's ongoing flooding now from rivers and dams. Windspeeds were 130 mph+ 4+ hours inland in Georgia where I have family and there neighborhoods have trees down and roof damage everywhere. We're talking about a path of damage comparable in size to the country of Italy....

I think it's wait and see - I'm curious to know what type of output increase the Saudis can sustainably do in the name of increasing their market share. Keep in mind their target price of $100/barrel didn't matter much and prices have trended significantly below that for years. I'm not entirely sure them "changing" tact means much or can be sustained. Perhaps I am wrong - but time will tell. I will likely buy any downdraft in the meantime as an intentional flooding of the market to kill competition improves the prospects of all that survive.

I disagree. Obviously things peaked in 2021 like all things inflation-related did. And I'm not married to the positions - I have traded around my positions selling on pumps and adding on dumps. But even without that, my names in the energy sector have done reasonably well over the last 2-3 years. They haven't gone gang-busters, but they've continued to pay healthy dividends easily supported by cash flows at oil prices significantly lower than what was prevalent in 2021 post-invasion while having seriously de-risked balances sheets. Reserves continue to be drawn down, the industry continues to consolidate, and many companies are still acting responsibly with capital allocation, and energy will probably remain the single best inflation hedge there is for the foreseeable future. I don't' really care that the share prices aren't rocketing higher and high single digit dividends are paid instead - the stage is still set for this to be a sector that likely outperforms most for the next 10 years IMO.

I lived on on the Louisiana/Mississippi Gulf coast just before Katrina. We were fortunate to have moved just a few months before the storm. Flood zones didn't end up mattering. Entire neighborhoods outside of flood zones had 10-20 ft of water. I remember friends of mine lived on a bay in the area, but elevated 20-30 ft up a sheer cliff from the water. Still had over 10 ft of water in their home. Our prior home wasn't as elevated, but was 1.5+ miles inland from any coastal water. Was still ENTIRELY under when the storm surge came. 20-30 ft walls of waters have a funny way of changing what areas flood when they come onto land and people cannot rely on historical flood plane maps to determine if they'll be seeing any.

I think it's good for a lot of things 1) It allows long-term holders to derive an income off an asset that doesn't generate any via covered calls 2) It allows you to hedge positions without selling the underlying if you wanted to do puts 3) It allows an entirely new investors to enter the asset class - those seeking volatility premium Previously, we only had very bad proxies in the US to trade options on. As someone that has traded options on those proxies, more than 1/2 of my profits were wiped out by things like BITO announcing exceptionally large dividends unsupported by roll yield or by MARA's downdraft from $21 to $15 when I was trying to avoid selling puts across BITO's ex-dividend date....

This is huge - especially since BITO has this weird "we're gonna pay a 5% monthly dividend that is totally unsupported by underlying performance of roll yield" strategy that has totally f*cked up my puts and calls on the name over the last 2-3 months despite being roughly correct on Bitcoin timing/price. Will be nice to trade options on a strategy that ACTUALLY tracks Bitcoin.

I don't disagree with you in theory, but in practice..... Nominal earnings are only just now back to where they were in 2021 (a hair less actually). But the S&P 500 is ~20% higher than it was at the end of 2021 when many people were pointing to bubble valuations in names like Rivian, Zoom, Peloton, etc. So we're higher than bubble-induced valuations from 3-years ago despite contracting nominal earnings over that time (and still dramatically negative on a real basis). It does not seem earnings, real or nominal, are what are driving this market. Nor the TINA argument that was used for much of the last decade given that rates became very attractive for the first time in 15 years IMHO. I don't know what drives equity values/valuations other than saying its sentiment because price growth has far outpaced any sort of revenue/profit growth and has so for most of the last decade.

Can you explain your reasoning here? I'm not following why investors would be discounting a stock that they expect to rise 80-100% in a likely merger? I would think CSB would be trading HIGHER today due to the speculation for a deal?

Honestly quite amazing given the underperformance of the S&P in 2022 and again in 2023 - and not by small amounts. 2020 and early 2021 had Fairfax coiled like a spring. As did the positive developments of things like the sale of Pet Insurance, Digit's explosive growth, hard insurance markets, and the opportunistic share repurchases. A nice confluence of luck and skill with a depressed share price set us up for one hell of a 5 year run.

I think the hope was BIAL/anchorage IPO providing some liquidity to add to the existing cash held - we will see if it still will. I would expect bureaucratic delays may also impact the sale process as they did the IPO process. Some debt issuance, some equity partners like OMERS, and some additional cash on the balance sheet seems like they could get it done. And while $2B may be the market cap - the current portfolio is closer to $3.6B with seemingly conservative marks for BIAL and limited borrowings at this time - so I think they could find a way to leverage the balance sheet a little and take a 50% chunk in this name similar to how BIAL has dominated the portfolio in the past.

When Fairfax Financial was trading @ $300 USD in 2020 - was that a bad time to be buying because the low share price hamstrung their ability to issue shares? Or was it a great time to be buying because it was absurdly cheap and gave them the optionality to reduce share count at a fantastic discount? And if the latter - why are we treating this differently?

Miner capitulation forcing holders of BTC to sell. You can see that in the hashrate dip following the halving (and has happened every halving) which is why price typically takes a few months to rip post-halving. Additionally, the German government sold 10,000+ BTC it confiscated back in July. People think a recession is coming so buying is probably a hair more muted and there is liquidity at ~60-70k that gets sold when we hit it from people concerned about the medium term outlook. Also, this was the first time BTC ever hit a new ATH BEFORE the halving of the supply so perhaps a few additional months of consolidation are in order. Those are a few thoughts - but I expect it'll be higher by year end and significantly higher ~6-months from now. I'd generally say the trend in demand growth/ETF flows/etc probably supports ~100k by early 2025.

https://bitcoinmagazine.com/markets/bhutans-bitcoin-holdings-revealed-kingdom-owns-780m-in-btc-from-mining

I think management's biggest responsibility is BV growth. They've done that. They've also executed ongoing buybacks for the last 4-years that have reduced share count by quite a bit (¬12% of shares outstanding) at significant discounts while still making new investments and moving to realize the value in the underlying portfolio. I don't think managing share price is a top management priority nor is it what I would want to be paying them for. The discount is an opportunity that capital markets are giving us - not something that the managements' priority is to eliminate. Just like management did nothing to earn/be responsible for the prior NAV premium. This is the problem with buying things at excessive premiums to NAV. I was very critical of the values of FIH post IPO and warned against paying too much of a premium. I didn't own it then. I own it in huge size today. I think my 8-year return is going to be quite satisfactory. +1 We don't get to blame management for the mistake of having paid too high a price for the shares. But now the market is offering to low of one. We don't get to blame management for that either - but we can take advantage of it.

Hard to say for more bespoke contracts like this. But my experience with them is there is typically a stated maturity/reset date where the notional value and financing rates can be adjusted for an extension or terminated. It's not uncommon for these to be monthly or quarterly intervals, so I'd expect Fairfax to be able to exit with some flexibility if they want to.

Fairfax is receiving the return on a number of shares, as if it owned them, in exchange for a financing rate (LIBOR or whatever iteration it exists today plus a spread). Typically, the return and financing costs are better and paid either monthly or quarterly. In cases where the return on Fairfax shares exceeds the financing cost, Fairfax receives cash. In cases where the return on Fairfax shares is less than the financibg costs, Fairfax pays cash.

I still don't understand this argument. Sure it makes sense in theory - but then why was insurance so morose in the 2010s when interest rates were also at 0% for most of the decade? Why did the hard market were seeing now start post-covid when interest rates were rising to a highest level they've been since pre-GFC? Overall, the theory may be true - but it seems the lags in effects on profitability are so long as to be meaningless in forecasting anything in the next 1-3 years in terms of hardness/softness and earnings. My main concern isn't a mark to market loss on equities in a down market, but a liquidity drain from the TRS if Fairfax gets sold off in tandem. That didn't happen in 2022. It DID happen in 2020 and 2018 and 2007. Perhaps the leverage is worth the quarterly liquidity risk. But I'd feel more comfortable if Fairfax didn't own the TRS in a down market.

For some reason everyone looks at the 2s - 10s. But the founder of the signal uses the 3M and the 3M better reflects the cost of bank funding if you believe that expansions and contractions in credit are what give this its predictive power. We're still VERY inverted on 3M - 10Y - though the Fed had typically followed the 2Y suggesting we may not bet there for long. I'm still waiting for the reversion of the 3M-10Y via Fed rate cuts which historically has been the signal tough times are ahead for equities.

It means Carson Blocks entire thesis is falling apart "It'll never IPO" "It's not worth anything close to what Fairfax marks it at"

Correct. The carrying value is increased for their proportional earnings and decreased for any dividends paid. It's a bit of a crude mechanism assuming the purchase price plus retained earnings is the value, but it's grounded in reason.

It's about dispersion of outcomes. The more you look like the "average" the more your returns will represent the average of 7-9% for stocks you often hear discussed. Concentration allows you to swing wide on either side of that range. So you could get 19% a year. Or -5%. The way I typically look at it is concentration is how you make money while diversification is how you keep it. Return maximization versus risk mitigation. I used to uber-concentrate. And all of my concentrated picks did very poorly while my small positions did exceptionally well. I changed my approach, capped myself at a 10% position limits in any one stock (and it takes me a long time to get there) which forced me to allocate more to smaller positions and to be less emotionally invested/tied to the success of any one company or idea. As of this moment, Fairfax is the only stock that is a 10% position for me and a chunk of that was its outperformance/appreciation relative to the rest of the portfolio. And then Fairfax India and Exor are both roughly ~7-8% positions. 3 stocks are ~25% of my portfolio. It probably rises to 20-25 stocks to get to 50% and the rest is ETFs/mutual funds held in 401ks and HSAs. For me, this has driven acceptable returns while limiting my risk, and emotional investment, in any one single company - but still allowing me dispersion to the upside when my concentrated names outperform.

I added to my starter position in Alibaba and a new position in Prosus. I view them collectively as a growth/repurchase/chinese exposure play. Collectively they are at 4-5% of my portfolio with the vast bulk of that having been established this year.

For sure. And a huge chunk of my equity exposure has been in FFH and Exor. My returns in 2022 were actually quite positive as a result (overshadowed by my large exposure to crypto). But the S&P is an average, and includes 490ish companies that are largely among the leaders in their spaces, and the more and more I look - most have done bad-to-mediocre nominally and horribly on a real-adjusted basis over the last 1, 3, and 5 years for an asset class that is supposedly an inflation hedge. Pending how you structured your fixed income, there's a good chance you outperform a good chunk of the market just owning short/medium term fixed income over this period. The point isn't to say there's no stocks that have done well. The point is to say I'd rather try playing the equity game when most stocks are going up as opposed to try to pick the few that will. Odds are much more in your favor when there's a rising tide and even your mistakes have a good chance of going up. I've done well selecting the few that did this time around - I wasn't as lucky in 2015 or 2018 trying to play that game.

Have been for a bit. Finally get some price movement on my fixed income and not just the coupons. Though would add that the best time to have been buying was BEFORE the odds agreed with the positioning. Also, keep in mind the September effect, that has seen yields rise by 0.25 - 0.75% in September/October each year for the last few years. You might get a better bite at the apple in October even if the Fed does cut in September.