2013 results are out

[mcliu]

Good post zachmansell and wisdom. +1

[gary17]

Prem is hedging for a 100 year event. So that'd be worse than the great depression and the sell of in the 80s... that's like a 50% and more market decline.

 

Think that could very well happen. On the other hand. We have a more interconnected world economy today. There's more study / understanding of economics .... so while the probability of the event occurring is probably as likely as in prior circumstances, the consequence may not be as great due to the advancement of our societies.... 

 

Optimism is a competitive advantage.

 

Funny how 1 in 100 year events happen far more often than that.

1929-1932 - peak to trough of 90% over the course of TWO massive market drops (this is what Prem is concerned about)

2007-2009 - peak to tough of 54%

1937-1938 - peak to trough of 52%

1973-1974 - peak to trough of 46%

1939-1942 - peak to trough of 39%

1968-1970- peak to trough of 36%

2000-2002 - peak to trough of 34%

 

Notice in the last 100 years, there were 7 instances of a 30+% corrections. You'll also notice that they all seem to cluster together with 3 occurring from 1929 through 1942, 2 in 1970s, and 2 in the 2000s. Now, I'm a betting man and I see a world that has more debt than any historical precedent, politicians who prefer to paper over the problems with bailouts and moral hazards, and a world that is more interconnected and susceptible to external shocks than it has been in the past....and because we haven't seen a major decline in stock indices in 5 years it means Prem is an idiot or has lost his touch?No. It means he has a better knowledge of history than you.

 

1929 - 2000 is before we really have Internet - before there are all these forums, blogs, etc - I really think it makes a difference. 

 

While I think the market is not cheap I also think the market is behaving cautiously - 

 

So of all those events we are still many times better than in 1900 - the standard of living, the quality of life, advancement in medicine, better telecommunication, education, entertainment, etc, etc. 

 

We need a bit of bubble to keep the economy growing and get people out of poverty - as long as the bubble doesn't burst. 

 

I just keep looking for good businesses that has good pricing power during bad or good times -- so if we'll have a correction then so be it - I'd rather be optimistic and look at how businesses can achieve their goals & prosper

 

G

 

[giofranchi]

So you're happy to strive for ~9% annualized gross return?

 

writser,

of course this is my worst case scenario for FFH... I do not really expect FFH to make no money for the next 3 years… No money 4 years in a row? Really?! ???... As I do not really expect the markets to march on perfectly undisturbed, like they did in 2012 and 2013, for the next 3 years…

 

Gio

 

[giofranchi]

Gio, I would maintain that your projection is speculation and not knowable. At the end of the day we all do what makes us comfortable. You are smarter than me though so what do I know.

 

Consider the following simple almost naïve question: is it sustainable for an economy, which expands at a real growth rate  of 2-3% per year, to provide a return (to investors) of say 10-15% per year?

--Didier Sornette, world renowned mathematician.

 

Kraven,

I think that, should the markets march on for 3 more years like they have done in 2012 and 2013, we would have created the most “fragile” environment in history. And I think FFH is “anti-fragile”, meaning it will benefit from whatever bad outcome awaits a fragile system. You might call this speculation, I like to call it business judgment. Anyway, in investing we are always dealing with the future… therefore, no certainties here!

My answer to your question was simply meant to tell you I think you are right, and I definitely have a time horizon over which I judge FFH results: I look at 2000 – 2009 as one cycle for FFH, and I look at 2010 – 2019 as another cycle for FFH. Therefore, I think more patience is required before we could label FFH a mediocre, a good, or a great business.

 

Gio

 

PS

And you know very well I am not smarter than you… the opposite is most surely true!

 

[steph]

10%-20% declines can happen in any given year.  So they should be hedged for that all the time, if they are hedged for it now.  Don't you see that?

 

They are worried about potential for a far greater decline.  They could instead simply express that worry by purchasing puts that are 10%-20% out-of-the-money.  That way, they accept the normal 10%-20% decline that any year can bring them, but they are protected in case anything far more severe arises.

 

Well anyway, that's the only irrational thing I see with their hedges.  They are hedging against every single penny of potential decline... when honestly, they know that in any give year, at any given time, you could be suffering 10%-20% decline.  That's just life in the markets.

 

So that's just what I find frustrating -- you can protect against 1-in-100 year declines without losing most/all of your gains when the market goes up instead. 

 

It seems pretty obvious really.

 

Is there enough liquidity in out of the money puts for a multi billion portfolio?

[steph]

What I find interesting is that people keep talking about how we will see if they are right in the future. It's been 5+ years. Doesn't there need to be some kind of time component to a determination of whether someone is "right" about a course of action?  Broken clocks and all that. It's like predicting that San Francisco is due for another major earthquake. If it occurs in 2024 are you right?

 

+1

Completely agree. I own and I like FFH. We are all in the business of taking 'calculated risks' and being wrong is part of it. And FFH has been completely wrong about the way they hedged their portfolio. I have no problem with that. But they should accept it and stop talking about 'unrealised losses'.

[Packer16]

I agree that I like Fairfax and the way they think, however, these hedges have become a disaster.  When I first asked about these a few years ago and the AM they said these were temporary and not a normal part of their investing program but in fact since 2009 they have been.  They have destroyed a good part of the returns they have generated by removing the high appreciating alpha from their portfolio.  If they are too levered to hold as much equity as they want then get rid of the debt and preferred shares and delever,  What you have this year is a good underwriting year that no one expects to be repeated and it has saved their bacon.  Could you imagine a bad underwriting year and the investment losses combined, which is what we may get next year. 

 

Having your strategy based on your investment alpha too is very risky because over time beta has added so much to equity returns that removing it increases risk and reduces returns.  This has been an expensive and painful investment period.  My take from the history of money managers that have either tried to hedge or gone to a large % cash have all lost to the market (call is the triumph of beta over alpha).  I hope the folks at Fairfax being students of history can/will learn from this as they have done with other aspects of their investment approach.  If they are worried about a large decline why don't they sell the hedges and buy 20% OTM puts instead?  This will provide them protection and if they are wrong the upside they have earned.

 

Packer

[ERICOPOLY]

Consider the following simple almost naïve question: is it sustainable for an economy, which expands at a real growth rate  of 2-3% per year, to provide a return (to investors) of say 10-15% per year?

--Didier Sornette, world renowned mathematician.

 

 

Why not?  Yes, it certainly could be sustainable.

 

For one thing, you said real growth rate and the 10-15% returns could be nominal.

 

Second, if we are talking about equity returns, then earnings can be reinvested in more shares.  So if the P/E is right, you can certainly generate those kind of returns simply from earnings growth per share (thus, it is sustainable in perpetuity). 

[ERICOPOLY]

10%-20% declines can happen in any given year.  So they should be hedged for that all the time, if they are hedged for it now.  Don't you see that?

 

They are worried about potential for a far greater decline.  They could instead simply express that worry by purchasing puts that are 10%-20% out-of-the-money.  That way, they accept the normal 10%-20% decline that any year can bring them, but they are protected in case anything far more severe arises.

 

Well anyway, that's the only irrational thing I see with their hedges.  They are hedging against every single penny of potential decline... when honestly, they know that in any give year, at any given time, you could be suffering 10%-20% decline.  That's just life in the markets.

 

So that's just what I find frustrating -- you can protect against 1-in-100 year declines without losing most/all of your gains when the market goes up instead. 

 

It seems pretty obvious really.

 

Is there enough liquidity in out of the money puts for a multi billion portfolio?

 

I'm sure there is.  They can deal directly with the bank(s).

 

In 2007 they had a multi-billion dollar hedge via call options (a hedge against the market climbing).

 

[giofranchi]

When I first asked about these a few years ago and the AM they said these were temporary and not a normal part of their investing program but in fact since 2009 they have been.

 

Second half of 2010.

2009 has been a great year for FFH.

 

What you have this year is a good underwriting year that no one expects to be repeated and it has saved their bacon.

 

OdysseyRe has been posting great underwriting results for years now. Under the leadership of Mr. Barnard, who made OdysseyRe so much profitable, let’s hope underwriting results for the whole FFH’s family of insurance companies will become satisfactory year after year, with a comfortable enough degree of predictability. Even if I agree 2013 underwriting results will be difficult to exceed or even match in the future.

 

My take from the history of money managers that have either tried to hedge or gone to a large % cash have all lost to the market (call is the triumph of beta over alpha).  I hope the folks at Fairfax being students of history can/will learn from this as they have done with other aspects of their investment approach. 

 

It seems we have studied different histories… All I have studied about great capital allocators and entrepreneurs of the past suggests they always had the cash to take advantage of great opportunities, the few precious times those opportunities had presented themselves. Mr. Buffett, the greatest advocate of stocks among them all, has shown to always have ready cash at hand: just look at the billions he was able to invest in 2008/2009. Imo a cash reserve is one thing, hedges are another.

 

Gio

 

 

[StubbleJumper]

10%-20% declines can happen in any given year.  So they should be hedged for that all the time, if they are hedged for it now.  Don't you see that?

 

They are worried about potential for a far greater decline.  They could instead simply express that worry by purchasing puts that are 10%-20% out-of-the-money.  That way, they accept the normal 10%-20% decline that any year can bring them, but they are protected in case anything far more severe arises.

 

Well anyway, that's the only irrational thing I see with their hedges.  They are hedging against every single penny of potential decline... when honestly, they know that in any give year, at any given time, you could be suffering 10%-20% decline.  That's just life in the markets.

 

So that's just what I find frustrating -- you can protect against 1-in-100 year declines without losing most/all of your gains when the market goes up instead. 

 

It seems pretty obvious really.

 

Is there enough liquidity in out of the money puts for a multi billion portfolio?

 

I'm sure there is.  They can deal directly with the bank(s).

 

In 2007 they had a multi-billion dollar hedge via call options (a hedge against the market climbing).

 

 

Or they can deal with BRK.  Buffett happily wrote multi-billion dollar puts a few years back.

[valuesource]

10%-20% declines can happen in any given year.  So they should be hedged for that all the time, if they are hedged for it now.  Don't you see that?

 

They are worried about potential for a far greater decline.  They could instead simply express that worry by purchasing puts that are 10%-20% out-of-the-money.  That way, they accept the normal 10%-20% decline that any year can bring them, but they are protected in case anything far more severe arises.

 

Well anyway, that's the only irrational thing I see with their hedges.  They are hedging against every single penny of potential decline... when honestly, they know that in any give year, at any given time, you could be suffering 10%-20% decline.  That's just life in the markets.

 

So that's just what I find frustrating -- you can protect against 1-in-100 year declines without losing most/all of your gains when the market goes up instead. 

 

It seems pretty obvious really.

Is there enough liquidity in out of the money puts for a multi billion portfolio?

 

I'm sure there is.  They can deal directly with the bank(s).

 

In 2007 they had a multi-billion dollar hedge via call options (a hedge against the market climbing).

 

 

Or they can deal with BRK.  Buffett happily wrote multi-billion dollar puts a few years back.

 

I've spoken to them about this.  Apparently, it has more to do with cost than liquidity. Either the time premium or the cost of rolling would be too high to make OTM options competitive.  Seems to me the liquidity issue could be solved by a market maker. Certainly when they hedged using S&P options they would have contacted a market maker -- which was costly.  Russell is less liquid, and there costly.

[gary17]

 

Consider the following simple almost naïve question: is it sustainable for an economy, which expands at a real growth rate  of 2-3% per year, to provide a return (to investors) of say 10-15% per year?

--Didier Sornette, world renowned mathematician.

 

http://www.scribd.com/doc/102565960/GMO-Ben-Inker-Reports-of-the-Death-of-Equities-Have-Been-Greatly-Exaggerated

 

We will begin with a summary of our basic points:

1) GDP growth and stock market returns do not have any particularly obvious relationship, either empirically or in theory.

2) Stock market returns can be significantly higher than GDP growth in perpetuity without leading to any economic absurdities.

...

 

Interesting that's the same message I'm getting in Ken Fishers book.

 

 

I wonder in all the previous crashed - what did WEB do? Did he hedge? Did he build cash positions or others?

[Packer16]

When I first asked about these a few years ago and the AM they said these were temporary and not a normal part of their investing program but in fact since 2009 they have been.

 

Second half of 2010.

2009 has been a great year for FFH.

 

What you have this year is a good underwriting year that no one expects to be repeated and it has saved their bacon.

 

OdysseyRe has been posting great underwriting results for years now. Under the leadership of Mr. Barnard, who made OdysseyRe so much profitable, let’s hope underwriting results for the whole FFH’s family of insurance companies will become satisfactory year after year, with a comfortable enough degree of predictability. Even if I agree 2013 underwriting results will be difficult to exceed or even match in the future.

 

My take from the history of money managers that have either tried to hedge or gone to a large % cash have all lost to the market (call is the triumph of beta over alpha).  I hope the folks at Fairfax being students of history can/will learn from this as they have done with other aspects of their investment approach. 

 

It seems we have studied different histories… All I have studied about great capital allocators and entrepreneurs of the past suggests they always had the cash to take advantage of great opportunities, the few precious times those opportunities had presented themselves. Mr. Buffett, the greatest advocate of stocks among them all, has shown to always have ready cash at hand: just look at the billions he was able to invest in 2008/2009. Imo a cash reserve is one thing, hedges are another.

 

Gio

 

But Mr. Buffet and most of the other successful investors have never removed the market return of stock from there returns.  There is a difference in having alot of cash and removing all of the market return from your position.  In essence FFH has done both and Berkshire only the former.

 

Packer

[ERICOPOLY]

10%-20% declines can happen in any given year.  So they should be hedged for that all the time, if they are hedged for it now.  Don't you see that?

 

They are worried about potential for a far greater decline.  They could instead simply express that worry by purchasing puts that are 10%-20% out-of-the-money.  That way, they accept the normal 10%-20% decline that any year can bring them, but they are protected in case anything far more severe arises.

 

Well anyway, that's the only irrational thing I see with their hedges.  They are hedging against every single penny of potential decline... when honestly, they know that in any give year, at any given time, you could be suffering 10%-20% decline.  That's just life in the markets.

 

So that's just what I find frustrating -- you can protect against 1-in-100 year declines without losing most/all of your gains when the market goes up instead. 

 

It seems pretty obvious really.

Is there enough liquidity in out of the money puts for a multi billion portfolio?

 

I'm sure there is.  They can deal directly with the bank(s).

 

In 2007 they had a multi-billion dollar hedge via call options (a hedge against the market climbing).

 

 

Or they can deal with BRK.  Buffett happily wrote multi-billion dollar puts a few years back.

 

I've spoken to them about this.  Apparently, it has more to do with cost than liquidity. Either the time premium or the cost of rolling would be too high to make OTM options competitive.  Seems to me the liquidity issue could be solved by a market maker. Certainly when they hedged using S&P options they would have contacted a market maker -- which was costly.  Russell is less liquid, and there costly.

 

So they effectively want to do it the way I want them too, but they think the expense outweighs the benefit.

[giofranchi]

But Mr. Buffet and most of the other successful investors have never removed the market return of stock from there returns.  There is a difference in having alot of cash and removing all of the market return from your position.  In essence FFH has done both and Berkshire only the former.

 

Packer

 

I agree. That’s why I have said that imo to have a cash reserve, and to make it grow or shrink strategically over time, and to hedge equity exposure are two very different things.

Even accounting for exceptional mark to market bond losses in 2013 and a 30% cash position, without the losses due to equity hedges FFH would have posted very satisfactory results!

 

Gio

 

[giofranchi]

But Mr. Buffet and most of the other successful investors have never removed the market return of stock from there returns.  There is a difference in having alot of cash and removing all of the market return from your position.  In essence FFH has done both and Berkshire only the former.

 

Packer

 

I agree. That’s why I have said that imo to have a cash reserve, and to make it grow or shrink strategically over time, and to hedge equity exposure are two very different things.

Even accounting for exceptional mark to market bond losses in 2013 and a 30% cash position, without the losses due to equity hedges FFH would have posted very satisfactory results!

 

Gio

 

This being said (equity hedges have undeniably been a costly mistake!), what to do now? Mr. Soros seems to agree with FFH's strategy of keeping equity hedges in place:

 

Soros doubles a bearish bet on the S&P 500, to the tune of $1.3 billion

http://blogs.marketwatch.com/thetell/2014/02/17/soros-doubles-a-bearish-bet-on-the-sp-500-to-the-tune-of-1-3-billion/?mod=MW_home_latest_news

 

Gio

[shalab]

But Mr. Buffet and most of the other successful investors have never removed the market return of stock from there returns.  There is a difference in having alot of cash and removing all of the market return from your position.  In essence FFH has done both and Berkshire only the former.

 

Packer

 

I agree. That’s why I have said that imo to have a cash reserve, and to make it grow or shrink strategically over time, and to hedge equity exposure are two very different things.

Even accounting for exceptional mark to market bond losses in 2013 and a 30% cash position, without the losses due to equity hedges FFH would have posted very satisfactory results!

 

Gio

 

HW analysis group (~50 analysts ) has always used hedging - they state equity results with hedging. They have been enormously successful using that strategy in the past with the last four years being an exception. I would even say hedging ( or macro calls ) is their core competency.

 

Therefore one shouldnt compare FFH (FRFHF) with Berkshire, MKL etc. FRFHF can have a place in one's portfolio ( Gio's logic ) just because it uses a different strategy.

 

However, as PW himself has indicated, FFH will go down in a bear market - he just hopes it won't be as much as the index. Berkshire never had this issue as their book value will drop less than the market and they can deploy their hoard of cash at attractive prices if such an event occurs.

 

 

[constructive]

I agree that I like Fairfax and the way they think, however, these hedges have become a disaster.  When I first asked about these a few years ago and the AM they said these were temporary and not a normal part of their investing program but in fact since 2009 they have been.  They have destroyed a good part of the returns they have generated by removing the high appreciating alpha from their portfolio.  If they are too levered to hold as much equity as they want then get rid of the debt and preferred shares and delever,  What you have this year is a good underwriting year that no one expects to be repeated and it has saved their bacon.  Could you imagine a bad underwriting year and the investment losses combined, which is what we may get next year. 

 

Having your strategy based on your investment alpha too is very risky because over time beta has added so much to equity returns that removing it increases risk and reduces returns.  This has been an expensive and painful investment period.  My take from the history of money managers that have either tried to hedge or gone to a large % cash have all lost to the market (call is the triumph of beta over alpha).  I hope the folks at Fairfax being students of history can/will learn from this as they have done with other aspects of their investment approach.  If they are worried about a large decline why don't they sell the hedges and buy 20% OTM puts instead?  This will provide them protection and if they are wrong the upside they have earned.

 

Packer

 

This is very well said, although the downside of cash might be a bit overstated.

 

The 7 lean year / 3 fat year model sounds like Gambler's Fallacy to me. Lean years don't make fat years more likely. The only way to predict good results is to observe good business practices.

 

The market is more expensive than it was 4 years ago, but I'm not convinced that Fairfax is any better positioned today than they were in 2010. The equity hedges are probably better positioned, but we are 4 years closer to interest rates rising and 4 years further into Blackberry's decline.

[yitech]

I agree that I like Fairfax and the way they think, however, these hedges have become a disaster.  When I first asked about these a few years ago and the AM they said these were temporary and not a normal part of their investing program but in fact since 2009 they have been.  They have destroyed a good part of the returns they have generated by removing the high appreciating alpha from their portfolio.  If they are too levered to hold as much equity as they want then get rid of the debt and preferred shares and delever,  What you have this year is a good underwriting year that no one expects to be repeated and it has saved their bacon.  Could you imagine a bad underwriting year and the investment losses combined, which is what we may get next year. 

 

Having your strategy based on your investment alpha too is very risky because over time beta has added so much to equity returns that removing it increases risk and reduces returns.  This has been an expensive and painful investment period.  My take from the history of money managers that have either tried to hedge or gone to a large % cash have all lost to the market (call is the triumph of beta over alpha).  I hope the folks at Fairfax being students of history can/will learn from this as they have done with other aspects of their investment approach.  If they are worried about a large decline why don't they sell the hedges and buy 20% OTM puts instead?  This will provide them protection and if they are wrong the upside they have earned.

 

Packer

 

Well said. When you remove the beta, you may have effectively removed a large portion of the return, which otherwise would compound, so the mathematics can work against you. Over the long haul, it can destroy a lot value. Putting on a complete hedge is effectively market timing, especially when it's over more than a couple years and ignores the fact businesses generally compound their value.

[Packer16]

But Mr. Buffet and most of the other successful investors have never removed the market return of stock from there returns.  There is a difference in having alot of cash and removing all of the market return from your position.  In essence FFH has done both and Berkshire only the former.

 

Packer

 

I agree. That’s why I have said that imo to have a cash reserve, and to make it grow or shrink strategically over time, and to hedge equity exposure are two very different things.

Even accounting for exceptional mark to market bond losses in 2013 and a 30% cash position, without the losses due to equity hedges FFH would have posted very satisfactory results!

 

Gio

 

HW analysis group (~50 analysts ) has always used hedging - they state equity results with hedging. They have been enormously successful using that strategy in the past with the last four years being an exception. I would even say hedging ( or macro calls ) is their core competency.

 

Therefore one shouldnt compare FFH (FRFHF) with Berkshire, MKL etc. FRFHF can have a place in one's portfolio ( Gio's logic ) just because it uses a different strategy.

 

However, as PW himself has indicated, FFH will go down in a bear market - he just hopes it won't be as much as the index. Berkshire never had this issue as their book value will drop less than the market and they can deploy their hoard of cash at attractive prices if such an event occurs.

 

I am not sure HW has always used hedging.  I asked Brian Bradshaw a few years ago about hedging and he said they did not use it materially before 2006 or so.  You can see this in their annual report.  Also as of Dec 2013, the equity hedges have net lost about $943.2 m or $47.00 per share over the 9 years they have been used.

 

Packer

[giofranchi]

The 7 lean year / 3 fat year model sounds like Gambler's Fallacy to me. Lean years don't make fat years more likely. The only way to predict good results is to observe good business practices.

 

The market is more expensive than it was 4 years ago, but I'm not convinced that Fairfax is any better positioned today than they were in 2010. The equity hedges are probably better positioned, but we are 4 years closer to interest rates rising and 4 years further into Blackberry's decline.

 

Well, of course my “7 lean years + 3 boom years” was only meant to give you an idea of the timeframe I am using for judging FFH’s results. If 7 lean years won’t be followed by very good results, then I will judge FFH’s strategy a bad one.

I have no idea what the future holds… but why are you assuming that rising rates would accompany a market correction? The opposite imo might be even more plausible.

Is this totally unthinkable? A stock market correction, with interests rates that go down as people fly to the safety of government bonds. FFH’s equity hedges rise more than its stocks portfolio declines, its bonds portfolio appreciates, and they keep underwriting profitably. That would surely lead to “boom” results! And it is far from unthinkable. It is simply too early yet, to dismiss such a scenario! ;)

 

Gio

 

[Enrico Pallazzo]

Funny how 1 in 100 year events happen far more often than that.

1929-1932 - peak to trough of 90% over the course of TWO massive market drops (this is what Prem is concerned about)

2007-2009 - peak to tough of 54%

1937-1938 - peak to trough of 52%

1973-1974 - peak to trough of 46%

1939-1942 - peak to trough of 39%

1968-1970- peak to trough of 36%

2000-2002 - peak to trough of 34%

 

Notice in the last 100 years, there were 7 instances of a 30+% corrections. You'll also notice that they all seem to cluster together with 3 occurring from 1929 through 1942, 2 in 1970s, and 2 in the 2000s.

 

Beware of false patterns.  Sometimes our intelligence (i.e., ability to recognize patterns) works against us.

 

Let me show you another series of years seeing large drawdowns in a particular country's stock market:

 

1905

1909

1942

1945

1971

1992

1993

 

Do you notice how those tend to cluster, and have nice 30-year cycles?  Would it surprise you to know that the source was the excel random number generator from 1900-2000?(This was the first series that popped up... I didn't wait for any unusual clustering).

 

In fact just for kicks I pulled together the second set of random numbers.  You see how it "proves" that things are getting more clustered more recently?  Surely a sign of increased economic interconnectedness and vulnerability!

 

1913

1935

1950

1979

1993

1994

1997

 

The fact that there was a crash in 2008 doesn't make it any more likely that there will be a crash today.  It does change the general perceived likelihood of such a crash, however, but I'd argue that's a behavioral bias.

 

(That said, for all the usual reasons--e.g., Hussman--I do think the market is pretty frothy right now).

[SharperDingaan]

FFH might find it useful to look at American Barrick & Placer Dome; how they fell in love with hedging, what it did to them, & how they eventually broke the spell to get out of it.

 

The ability of a company to precisely control its major risks is highly addictive ... but it is a investor responsibility, not managements.

Investors buy gold companies because they want those specific risks, & they choose how or whether they are going to mitigate them. Managements job is solely to run the company in the most efficient & effective manner possible. If I want P&C exposure I will buy it, & I will buy as much of it as I want.

 

The solution may be as simple as hedging the major ownership stakes through the option market. FFH takes the full P&C operational risk, & performs accordingly. Owners hedge their risk through the option market as they see fit. If FFH goes down it does not BK its owners, & we get better separation between owner & investor interests.

 

SD

 

 

 

[shalab]

FFH might find it useful to look at American Barrick & Placer Dome; how they fell in love with hedging, what it did to them, & how they eventually broke the spell to get out of it.

 

The ability of a company to precisely control its major risks is highly addictive ... but it is a investor responsibility, not managements.

Investors buy gold companies because they want those specific risks, & they choose how or whether they are going to mitigate them. Managements job is solely to run the company in the most efficient & effective manner possible. If I want P&C exposure I will buy it, & I will buy as much of it as I want.

 

The solution may be as simple as hedging the major ownership stakes through the option market. FFH takes the full P&C operational risk, & performs accordingly. Owners hedge their risk through the option market as they see fit. If FFH goes down it does not BK its owners, & we get better separation between owner & investor interests.

 

SD

 

SD, you explained FFH hedging very clearly - thank you! PW family is a control investor in FFH with PW voting for the family....