FFH Results

[petec]

No, for two reasons:

1. I (nearly) always keep some cash for better opportunities later; and

2. I had other good ideas. 

 

Incidentally, earlier you wrote:

 

Taken to its logical extreme, your argument suggests I'd only ever hold 100% cash or 100% of my favourite investment. 

 

These two reasons you give here could have been offered in refutation.  That's one of the problems with the "taken to the logical extreme" approach. 

 

Once I took your own buying to the logical extreme, you immediately came up with two reasons that quickly dismissed the logical extreme approach.  However, you didn't do that when you yourself presented the logical extreme argument.

 

Anyways, "logical extreme" approach is often just a "slippery slope" fallacy.  They usually seem better reasoned to the giver of the argument than to the taker (who immediately can see how the situation is more nuanced than that).

 

Hmm.

 

You wrote (my wording) that if I'm happy to hold, I'm happy to buy, except for tax and psychological reasons.  I said that that isn't true, because taken to logical extremes that would have me at 100% or 0% invested (probably just in one stock).  You pointed out that that is not what I have done.  I agreed, telling you why.  You agreed that my reasons were not tax- or psychology-related.

 

Doesn't that mean that you've agreed that there are non-tax, non-psychological reasons why I might not be happy to buy when I am happy to hold?  And isn't that contrary to your original post?

 

Or to put it another way, I took your original statement (un-amended for the later caveat about position size) to what I consider to be its logical extreme.  You took my buying to what I consider to be an illogical extreme.  So I don't see the similarity. 

 

Either way have a great day - mine is ending :)

 

P

[ERICOPOLY]

 

Likewise, I too do NOT regard those two reasons as being either tax or psychology related reasons.  I have not made any claims otherwise.

 

I thought you made exactly that claim, because I understood you to say that tax and psychology were the *only* reasons why, if I was bullish enough to hold, I might not be bullish enough to buy.  Perhaps that's where the misunderstanding lies.

 

We've been over this when I said that I wasn't discussing position sizing in my post.  Your reasons #1 and #2 are a rehash on position sizing.

[petec]

 

We've been over this when I said that I wasn't discussing position sizing in my post.  Your reasons #1 and #2 are a rehash on position sizing.

 

OK, well my final word (you'll no doubt be delighted to hear!) on this is that if your original post had included position sizing as a caveat along with tax and psychology, I'd have agreed with it.  It didn't, so I erroneously assumed tax and psychology were the only caveats.

 

P

[frommi]

I should perhaps better not post this, but i am bored :D. There is a fourth reason to hold a stock and that is uncertainty in the comparison method between investments. Given that you want to allocate capital to the best possible idea, you have to make a tradeoff when to switch investments. Perhaps you want to switch when the new idea has double the upside of the old one, but allocate new capital to your mathematically best idea. So you hold onto your old investment, but would buy the better idea.

[ERICOPOLY]

 

We've been over this when I said that I wasn't discussing position sizing in my post.  Your reasons #1 and #2 are a rehash on position sizing.

 

OK, well my final word (you'll no doubt be delighted to hear!) on this is that if your original post had included position sizing as a caveat along with tax and psychology, I'd have agreed with it.  It didn't, so I erroneously assumed tax and psychology were the only caveats.

 

P

 

Similarly, you could have simply objected to the idea that a person who is bullish and wants to buy a stock doesn't necessary want a 100% position.

 

I too agree with that, and it sort of goes without saying IMO so it's why I don't find it to be a necessary caveat.

 

Wall Street has these "buy/hold" recommendations.  I'm simply pointing out that they are the same thing, other than psychology and taxes.  I'm not recommending people step out of their comfort zone on positioning.  When Mike Mayo raises his recommendation from "hold" to "buy", he doesn't mean people who hold the stock should go 100%, and nobody confuses his message with that intent.

 

 

[ERICOPOLY]

Bottom line is that a person who holds a stock likes it more than cash.  Maybe he likes it more than cash because he doesn't want the tax hit.  Maybe he likes it more than cash because he has fallen into some sort of psychological reason why he can't part with it.

 

But he wants the stock more than he wants the cash.  That's evident.

 

So... if he had the cash instead (and no stock), why wouldn't he be a buyer?

 

That's the longer version of the argument.  There is longer of course, with more explanation and more example....

[petec]

I should perhaps better not post this, but i am bored :D.

 

Apologies!

[petec]

Similarly, you could have simply objected to the idea that a person who is bullish and wants to buy a stock doesn't necessary want a 100% position.

 

Yes.

 

Wall Street has these "buy/hold" recommendations.  I'm simply pointing out that they are the same thing, other than psychology and taxes. 

 

Not that this has anything to do with the original argument at all, but we tend to look at holds as sell recommendations given the hot water analysts can get into if they actually publish sells.

 

[ERICOPOLY]

Not that this has anything to do with the original argument at all, but we tend to look at holds as sell recommendations given the hot water analysts can get into if they actually publish sells.

 

That's true I suppose.

 

I should have instead pointed to the numerous times on this message board when people say they "missed the chance to load up".  They seem to imply that they would be happy to continue to hold the stock at the present level but for whatever reason won't initiate a position except at a much lower price.  That's rather bizarre.  It's not bizarre that they would like a lower price, it's bizarre that they still won't buy any at the current price given that if they held it already they would continue to do so going forward.

 

You see it with investors who claim to only buy at 50% of IV and only sell as it approaches 90% of IV.  Well, if they didn't already own it, why wouldn't they buy it for 70% of IV and hold it until 90%?  The part about it going from 50% already to 70% is water under the bridge.  Yet they behave this way.

 

[frommi]

You see it with investors who claim to only buy at 50% of IV and only sell as it approaches 90% of IV.  Well, if they didn't already own it, why wouldn't they buy it for 70% of IV and hold it until 90%?  The part about it going from 50% already to 70% is water under the bridge.  Yet they behave this way.

 

Margin of safety is too small.

[petec]

 

I should have instead pointed to the numerous times on this message board when people say they "missed the chance to load up".  They seem to imply that they would be happy to continue to hold the stock at the present level but for whatever reason won't initiate a position except at a much lower price.  That's rather bizarre.  It's not bizarre that they would like a lower price, it's bizarre that they still won't buy any at the current price given that if they held it already they would continue to do so going forward.

 

You see it with investors who claim to only buy at 50% of IV and only sell as it approaches 90% of IV.  Well, if they didn't already own it, why wouldn't they buy it for 70% of IV and hold it until 90%?  The part about it going from 50% already to 70% is water under the bridge.  Yet they behave this way.

 

My only disagreement would be this: you could make the same argument about buying it at 89% of IV, but no-one would because there would not be enough upside to the target.  But you might hold at that level, to obey your rule.  You could argue that obedience to a rule is psychological, but surely most of us impose rules on ourselves precisely to take psychology out of investing. 

 

 

[ERICOPOLY]

You see it with investors who claim to only buy at 50% of IV and only sell as it approaches 90% of IV.  Well, if they didn't already own it, why wouldn't they buy it for 70% of IV and hold it until 90%?  The part about it going from 50% already to 70% is water under the bridge.  Yet they behave this way.

 

Margin of safety is too small.

 

Then it's too small to hold it all the way to 90% of IV.

 

The rule should be "buy at 50% and sell at 70%".

 

Or is 60% too small?

 

"buy at 50% and sell at 60%".

 

 

[frommi]

Then it's too small to hold it all the way to 90% of IV.

 

The rule should be "buy at 50% and sell at 70%".

 

Or is 60% too small?

 

"buy at 50% and sell at 60%".

 

You can do this, but than you need a probability of profit of >80% to come out ahead in the end. Some investments might go to zero, so the rest has to bring more profits than you lose on your losers. Its much easier with buy @50% of IV and sell at 100% because then every loser is made up by one winner. I am pretty sure that you beat the market even when you are only right 55% of the time. In trading you would normally record all trades and balance your pop (probability of profit) and your profit targets to maximize your return on invested capital.

[gary17]

You guys bring up an interesting discuss. Generally the risk increases with the price... so as we go from starting price toward some own estimated intrinsic value the margin of safety will decrease.

 

I suppose the mentality for those who hold is I got it at cheaper so I can afford the price dropping back to where I started.... whereas if one has bought at say 80% of IV that affordability is much less... 

 

I guess in my mind are we suppose to look at this on a daily basis and watch every step of the pricing correction OR just simply look at this as from price A to IV and ignore the middle...

 

If the market conditions is good, when the stock is no longer a value stock, or about to graduate from being one, other types of investors may be interested... therefore, is it really risky to be buying or holding even at 80% IV?

[frommi]

Oh and when you lower your profit target, you increase your turnover which means a lot more transaction costs.

[ERICOPOLY]

Some investments might go to zero, so the rest has to bring more profits than you lose on your losers. Its much easier with buy @50% of IV and sell at 100% because then every loser is made up by one winner.

 

The ones currently trading at 70% of IV present the same risk/reward to both investors.

 

Both the man who bought at 50% of IV and still holds it at 70% IV on the way to 90% of IV.

As well as the man who buys it at 70% of IV for the first time and will sell at 90% of IV.

 

You are right, the winners need to recoup the losses of the losers.

 

However, when it is currently at 70% of IV the actual cost basis on your shares is irrelevant.

 

[gary17]

Would tax implications affect this ?

 

[ERICOPOLY]

Would tax implications affect this ?

 

Yes, and psychology.

[JBird]

Some investments might go to zero, so the rest has to bring more profits than you lose on your losers. Its much easier with buy @50% of IV and sell at 100% because then every loser is made up by one winner.

 

The ones currently trading at 70% of IV present the same risk/reward to both investors.

 

Both the man who bought at 50% of IV and still holds it at 70% IV on the way to 90% of IV.

As well as the man who buys it at 70% of IV for the first time and will sell at 90% of IV.

 

You are right, the winners need to recoup the losses of the losers.

 

However, when it is currently at 70% of IV the actual cost basis on your shares is irrelevant.

 

It took a while, but not surprisingly I find myself agreeing with Eric again.

[ERICOPOLY]

You could argue that obedience to a rule is psychological, but surely most of us impose rules on ourselves precisely to take psychology out of investing.

 

I figured out at Microsoft that some people are task-driven.  I think those people do very well on a strictly-regimented system.  Once they believe something to be gospel, and follow it religiously, it takes a lot of their own psychologically damaging impulses out of it.  These people need to be tied to the mast of the ship so as to avoid the siren songs...

 

So if you get up every morning and pray to a wailing wall or else some vain and vindictive god will strike you down So if you buy at 50% of IV and sell at 100% of IV So if you buy low and sell high then something good will come to you.

[Guest Dazel]

 

 

I have sold my very profitable Fairfax position. They have had a very good year so far...

Brian Bradstreet is a genius.....don't think bonds can go any higher.

 

Dazel

 

[giofranchi]

 

 

I have sold my very profitable Fairfax position. They have had a very good year so far...

Brian Bradstreet is a genius.....don't think bonds can go any higher.

 

Dazel

 

Dazel,

Any hint where you are redeploying the proceeds? Some new great ideas? ;)

Thank you,

 

Gio

 

 

[TwoCitiesCapital]

 

 

I have sold my very profitable Fairfax position. They have had a very good year so far...

Brian Bradstreet is a genius.....don't think bonds can go any higher.

 

Dazel

 

It has been a very good year indeed. If the market trend remains the same, we could very likely see 200M in gains from the equity hedges in Q2. That would be a nice tailwind.

 

Despite valuations becoming more rich, I can't bring myself to sell because I really like the fortress and downside insurance policy that Fairfax has become in my portfolio. I'm very aware that it's price will also drop in a market route (most likely); however, I'm also aware that if I know they're printing billions in dollars despite that then I'm far more comfortable holding on and adding to it if that happens. That's much better than most businesses whose short/medium term prospects decline as well (just not as much as their share price).

 

Also, I have no ability to predict bond markets but I'll say this:

 

1) Over the last 6 years, yields have fallen when the Fed wasn't buying and have risen when they were. The exact opposite of what one would traditionally expect. The Fed is tapering and thus far bonds have followed suit with yields falling from 3+% down to 2.6% on the 10 year. My guess is that buying bonds with printed money is intended to be inflationary (rising yields) and not buying them is deflationary (falling yields). Certainly fits the pattern.

 

2) I am far more tempered in my opinion of the likelihood of deflation then I used to be (being wrong for 4 years will do that), but I will say this: unprecedented levels of debt facing individuals, corporations, and governments is hugely deflationary in the wake of any economic downturn. I would think that there is very definitely the possibility of yields taking out 1.4% again if we hit a rough patch. I think it will take a lot to break this multi-decade downward trend in rates.

 

3)  Having $100B in deflation insurance across Europe and the United States is incredible protection to have in this environment. Especially since strikes were reset higher and more protection was bought cheaper and we still have over 7 years of life left in them. $100B in notional would result in a huge windfall for Fairfax in the event of troubled times. The contracts would pay for themselves with just 0.75% deflationary print across their geographical coverage. I like this "low" bar. The bulk of this coverage is the EU area where the rules for QE and monetary policy aren't quite clear and Draghi has his hands somewhat tied. IF deflation were to occur, this would be massive for FFH - potentially providing them with billions in liquidity at a down point in the market. This could literally define their average returns for the next decade if they're right about this.

 

Knowing that I have something in my portfolio that will mint money in the event of a severe downturn makes it a lot easier for me to be aggressive in other areas without worrying.

[Guest Dazel]

I have had some cash for awhile....I have been picking away at existing positions...Clarke and Altius as you already know...

But very recently I have been buying Bank of America...seems very cheap.

 

Love Fairfax and love owning it but is has been a hell of a year! Congrats to Prem and his team they really are doing well... their insurance buys during the last number of years will prove very very smart! Without the hedges over the last number of years they would the most talked about stock on the planet.

 

Dazel.

[Guest Dazel]

 

Zachmansell,

 

I know what you are saying....but I fear the money  printers will be back....for now. The hedges and bond moves are why we are at $500...with a couple of equity wins. I am certainly not calling a top either....just like to have the cash in my hands...I wish Fairfax and their team nothing but the best.

 

I really should have a picture of Prem and his team along side my family....they have meant that much to my livelihood....and to be partners with great people like that...gives you faith in this business...I bought shares in the 70's in 2003! wow getting old!

 

Good luck to all Associated with Fairfax.

 

Dazel

 

Dazel.