TwoCitiesCapital

Was that a single transaction? For $100M in par exposure?!? Any idea if it was executed at the bid or ask? The bid/ask before and after the transaction was 5.25/5.60 while the trade appears to have cleared at 5.40. I don't know if it was a buy or sell order. Just looked at bloomberg - 4 transactions for 1,000,000 shares apiece at $5.35 and $5.40. Still can't tell if that was the bid/ask at the time because the 5.25/5.60 bid/ask was from 40 minutes prior to when the transaction was actually executed. I have only been looking at the level 2 on OTCmarkets.com, but I have checked it off an on throughout the day and I haven't seen the bid/ask budge from 5.25/5.60. That volume still pales in comparison to the two 14M share blocks of FNMAT earlier this year. Still, I wonder why FMCKM. The correlation between dividend yield and share price on the prefs has definitely weakened in the past several months, sitting around 0.45 (had been close to 0.9 in the past). Might've simply been the only one available in that size - if you're managing a fund and buying in $100,000,000 blocks of par in illiquid names - it's probably better more important to enter/exit the exposures than it is to nitpick which one might outperform a hair due to higher dividend accruals. I can imagine that if I was managing that amount, I'd have outstanding limit orders on all preferreds traded and just let which ones fill where they may.

Was that a single transaction? For $100M in par exposure?!? Any idea if it was executed at the bid or ask? The bid/ask before and after the transaction was 5.25/5.60 while the trade appears to have cleared at 5.40. I don't know if it was a buy or sell order. Just looked at bloomberg - 4 transactions for 1,000,000 shares apiece at $5.35 and $5.40. Still can't tell if that was the bid/ask at the time because the 5.25/5.60 bid/ask was from 40 minutes prior to when the transaction was actually executed.

Was that a single transaction? For $100M in par exposure?!? Any idea if it was executed at the bid or ask?

I've significantly reduced my stake in SAN. I've been wrong for a number of years on their ability to hit profitability targets, and while I'm still optimistic that they get there - I can't tell you why they'd be any more likely to get there now versus the last four years where they've failed to achieve it. The stock is signficantly off it's lows and most of my profits in the name have been made relative value trades between it and its subsidiaries. It no longer made sense for SAN to be one of the largest names in my portfolio. Purchasing more PDER and ATUSF with the proceeds as I continue to move out of financial assets to companies that are backed by REAL assets.

Mutual funds can have incentive fee structure. And there are (mutual fund?) managers who reimburse fees like Chou. (The whole "incentive fees not allowed for hedge funds for retail investors" is weird although I kinda know where it came from.) I hadn't thought of mutual funds - was thinking of hedge funds and RIAs. Thanks for pointing that out!

I don't know if it's "illegal" to do so - but it was my understanding that it's against the current regulations to suggest that you would. The problem is in the suggesting/promising you will - not necessarily in the doing. Scenario A: You lose money and surprise clients by making them whole. (This is probably ok). Scenario B: You tell clients you will make them whole if you lose money (This is not ok). Also, it may change if clients are sophisticated, accredited investors. I know that you are unable to have an incetive fee type structure (i.e. a hurdle rate) with normal retail investors...even if it's in their favor.

Not that I'm aware of - but the whole purpose of the original structure as well as the more recent tendering of 79.9% max ownership via warrants was to keep liabilities from consolidated on the government's balance sheet. If the government is sole owner - those liabilities get consolidated. I don't think anyone really wants that.

I think i covered that in my post: Sure - it wasn't so much the conclusion I was probing as much as the thought process on differentiation debts of individual companies for aggregate statistics.

The logic is that nuance of how the debt comes to be. There's a world of difference between MSFT and AAPL and CVX and XOM. MSFT and AAPL are taking on debt to lower their taxes and have their debt covered 2x by cash in their bank accounts. CVX and XOM are taking on debt to pay their bills because their profits just cratered. If the inopportune moment as you call it comes MSFT and AAPL can just pay a bit of tax and extinguish their debt but XOM and CVX are stuffed. Huge difference. We're looking at these data sets in order to draw some informed conclusions. Adjusting the data with information we have about special situation improves the data and leads to better conclusions. But we're using it to inform us about the aggregate index as a whole. Sure, if we want to know about MSFT's prospects, it might make sense to adjust, but if we're looking at it to inform us on the aggregate of business/finances conducted by the DJIA, both debts contribute and both cash balances (or lack thereof) also contribute. It doesn't make sense to me remove "probablamatic" data points to get an idea of the whole unless if those datapoints are wild extremes that skew results. Arguably, it's not that wild for corporatations to use debt in tax planning strategies and I don't see why they should be excluded from index level statistics noting the increase in indebtedness of large corps in the U.S. That being said, we both would probably agree that median statistics are more meaningful here. What has happened to the debt/EBITDA ratio of the meadian company in the DJIA/S&P 500? How has the statistics of that median level and the financials of each year's median evolved and you probably have a more clear picture of what is going on with corporate America's finances.

What's the logic of defining good debt/bad debt tax strategy/leverage? Debt is debt. It's good when prices/profits/revenues are rising. It's bad when they're falling. All that matters is how an additional dollar of debt impacts the incremental net profits of a company - in good times that will be a positive. In bad times it will be a negative - the purpose/strategy of why/how the debt was added doesn't really matter when it comes due and needs to be paid or rolled at an inopportune time.

On the flip side, that could be exactly why the preferreds aren't moving. The bears have grown so used to being right, and the bulls so used to being wrong, that no one is updating their positioning based on the incremental information which appears positive at the margin. I modestly increased my position, but do not have enough confidence in my understanding of which path forward to victory is the most likely to have conviction to substantially increase my position on this information.

Debt tends to be A LOT less liquid than equities - particularly for a mongolian mining company that just went through a restructuring. I can't imagine there are many people out there looking at those specific bonds for purchase. Even looing at those links you provided - they show that the bonds don't trade daily. It might be worth working with interactive brokers' trade desk to get an assistance in execution on these, though there may be an additional fee for that.

Yes, this is huge. We can be compromised for the rest of our lives with this one. Maybe this will be a catalyst to come up with a different solution than the way SSN and credit checks work (e.g., freezing that is easy to do and not cost anything and requiring that the freeze be honored, at the liability of the issuer)... I really hope this obvious solution has a chance of becoming reality. This makes sense & should be easy to do. However, the scum that inhabit the halls of congress are richly rewarded for seeing this doesn't happen. If the financial wizards didn't suffer too much for their role in 2008-2009, probably won't suffer too much this time. Equifax should be facing financial death penalty for this. As noted above, I would like to think something positive and simple could be done, but unfortunately join you in the skeptics camp. Realistically - it doesn't have to be a government solution. The other two credit ratings agencies and financial institutions should be able to work together to implement a new system. I'm not a security expert, but a multifactor system seems like it could work. How hard would it be to require 2-4 pieces of information from the financial institution pulling your credit before returning a credit report with validation of that data/your identity? Maybe a combo of your social security, driver's license, a bill with your name/address on it, and posession of a credit card on your credit report or simply a customized PIN in addition to your SSN and the ratings agencies ping your phone/email whenever a credit report is pulled and by whom. I'm just spitballing here, but it shouldn't be TOO hard to amend this system to make it more secure now that 140 million SSN security numbers are likely floating around for sale...

http://www.zerohedge.com/news/2017-09-05/barclays-hurricane-irmas-insured-damage-could-be-largest-ever A question for those of you with longer insurance investment experience than I: What is the probability that the losses from Harvey and Irma (if as large as expectedin the above) could be the catalyst needed to reset rates in the insurance market and set up for sound forward pricing? Also, more generally, anyone know what estimated Fairfax exposure is to storm damage in Texas and Florida?

There are multiple threads on this board that cover the brokers that buy the stocks directly as well as what stocks are avaiable in ADR/GDR form on major exchanges. It might be worth a quick search.

Increased my position in Exor by 50%. I estimate that it trades at the same 40% discount to NAV as it did before the massive runs in Fiat, Ferrari, and CNH. Rolled some profits from Fiat into the it to get a second bite of the same apple. Still re-investing all dividends into battered retail names (LB, GPS, UA, RL, and COH)

Not necessarily - his mouth is still saying that equities are attractive on a relative basis while cash is building on his balance sheet. He's also complained the rich don't pay enough in taxes, but I don't see him demonstrating that he's writing personal checks in excess of what he owes OR selling stocks with hundreds of millions in capital gains liabilities to pay those taxes either. Do as he does. Ignore what he says. Ever since he decided to be a public figure, the value of his words has diminished markedly.

I appreciate this quote more than most, methinks :)

Not to discredit the argument that CAPE is a poor timing mechanism, but value metrics almost always underperforms at the end of cycles. Value as a whole has underperformed growth 9 out of the last 10 years in the U.S. (measured on a P/B basis). Underperformance over the past 9-years hasn't discredited value investing for most, so the underperformance of a CAPE strategy before the cycle is complete shouldn't be used to discredit it either. All that being said, CAPE isn't a timing mechanism, but it has been a pretty good measure of forward-looking returns for most of its history. When CAPE is unattractive, it does not necessarily mean sell everything and hold cash. Simply sell the unattractive things and buy things that are more attractive. I've been in international stocks, EM, and resource companies for the last 4-years because they were much better valued. I have very little long exposure in the U.S. (autos and retail). Has this impacted my returns - absolutely! Up until 2016, the U.S. was trouncing EVERYTHING! Particularly growth stocks in the U.S. The last two years have been a bit more favorable for me, but I think the vindication will be made when the U.S. corrects. Some people have said 10-years is the wrong fit for CAPE. They're right - when I ran the numbers correlations with returns myself, there was a higher correlation to 12- and 15- year returns (even though 10- is already a pretty compelling fit). This only suggests the implications of a high CAPE on future returns might be even LARGER than is currently understood and people may be underestimating how terrible forward-looking returns for U.S. equities could be - but it also extends the time frame in which a given correction in returns should be expected to occur by 2 to 5 more years.

I haven't read the book, so also not certain what level his comments about were loneliness were either, but I can attest that it can occur at levels of wealth significantly below that. It's probably not simply a function of wealth - i.e. loneliness of having no friends who can afford to do the same things as you (which is something I'm newly starting to experience at levels significantly less than $1). You can also get intellectual loneliness from not having like minded peers to discuss opportunities/investments/businesses etc. with. Hardly any of my friends care about entrepreneurship, running their own businesses, investing, etc. They all think about the world differently and think a lot of what I do is absolutely nuts to them. It actually gets really frustrating sometimes to attempt to discuss these things because it's almost as if we're speaking two different languages - they don't get me and I don't get them. I have about 4 friends that have similar levels of interest in wealth/investing/entrepreneurship/etc. It took me 10+ years to accumulate that many and none are local. Maybe that says something about my networking skills - but, I certainly understand the loneliness trade off from the intellectual capacity.

Right?!?! I think I had an appreciation for the value of Indian operations while totally overlooking the value of the small, but quickly growing, asian operations. 3x books with 25% retained ownership is incredible!

Getting slammed in retail today :/ Rolled another batch of dividends into LB, RL, GPS, and UA yesterday. Will keep all re-investments of dividends going into this basket for the time being. May add names like KORS if it comes back down a bit. Also, sold more puts on SHLD vs buying more puts on IWM today.

https://seekingalpha.com/pr/16906943-fairfax-financial-holdings-limited-second-quarter-financial-results Q2 results are out. Also, anyone have any clue what happened here? Was just reading the transcript and it looks like Prem skipped over this guy. Just curious if the transcript contains an error that makes it look this way or if he really did skip over someone?

Thanks, I'll read up on those. Were they just early, or wrong? I agree with your point on using leverage to fund low return bonds. The warrants and converts give more equity exposure than is obvious, as do the investments in associates, but still. Berkshire is less levered by debt and pref, but also less levered by cheap float. Overall it's significantly less levered full stop (roughly 2x assets/equity vs 4x, and even more so on tangible equity). They were right on all of them except the current situation. The problem with winning 3 out of 4 in investing though is that it's always the last time that can kill you. The amount they lost from equity hedges and inflation swaps this time around more than offsets the gains from the other 3 combined.

a) I don't think that's true if you include holdco and interest costs b) 4.4% net isn't that easy in a business where you are constrained re: what you can invest in, when treasuries yield 2.5% gross. I've been digging through their investment portfolio and there's some great potential in there, but i) some of the Indian prices have gone from silly cheap to pricing in quite a lot, so that move may be done for now, and ii) they have 25% of the post-AW portfolio in cash earning nothing. I love this thing long term and agree there is great earnings POTENTIAL, but it's going to take some very good investments to realise that potential. Fairfax's historic investment performance had a massive tailwind from falling bond yields (as did everyone's). That won't repeat, so historic absolute returns aren't a good guide to the future. I don't disagree with much here. I'll simply re-iterate that by the time you have the clarity on how they'll be achieving those returns of 4.4% net, the stock won't likely trade at $420-$475. It doesn't take much - a recession that blows out equity premiums and corporate spreads? An acceleration in inflation that lifts long-term rates to ~4%? A continuous correction in the dollar that results in their foreign businesses appreciation signficantly in value in USD terms? The demise of a large competitor that allows them to pick up compelling assets on the cheap? A massive natural disaster that resets the insurance and re-insurance rates to singificant premiums? Who knows what will happen to get them to that 4.4%. The point is, when it does happen, it probably won't trade where it's at for you to take advantage of it. And if it does? You can always buy more.