ERICOPOLY Posted November 5, 2009 Posted November 5, 2009 This could easily happen without a split. I hold 50% in FFH for this reason. It will happen with or without a split. However, people are saying that splits encourage speculators. If that translates to a higher share price, then it may translate to higher IV per share if shares are sold at the higher price vs an otherwise lower price. Perhaps I was splitting hairs, but the mechanics of this fascinates me. Stock price does influence IV, depending on management action. If management does not act, then stock price does not influence IV. Soros mentions the impact of price in his relexivity idea... personally, I don't think reflexivity is especially earth shattering, I think it is common sense. But many don't believe it exists.
ERICOPOLY Posted November 5, 2009 Posted November 5, 2009 Fairfax book value should trade at a premium because it is mostly liquid I'm not sure if the liquidity argument helps the premium. Aren't these assets priced in a market that knows they are liquid? In other words, isn't this already accounted for in the price of the assets themselves? I was thinking that Berkshire actually has the advantage in the assets not being liquid -- Berkshire has the access to the underlying cash flows. When Fairfax tries to tap the value of JNJ or OSTK, it is held hostage by the bid. The only dividend it can tap from OSTK is... what??? LVLT? There are limits to the value of the liquid assets... the limit is the bid! Liquid markets can be illiquid at times.
Guest Dazel Posted November 5, 2009 Posted November 5, 2009 Ericopoly, I will bite. What are the dividends exactly that Berkshire is getting from those dog businesses they own? They are losing money no dividends...USG is an example of a lot of Berkshire businesses...right now...(I know they do not own it all but I will use it as an example) If you think that liquidity does not deserve a premium right now...I would like to move to your world. Fairfax could buy the bad companies the Berkshire owns at a fraction of what they were worth years ago because they have liquidity. The example is USG where Fairfax did do this..they were a $60 company which Fairfax purchased for $6 with a 10% yield. If you were to take the bad companies that Berkhire has across the board and take the multiples the same way USG trades well...you see my point. Fairfax could sell thier USG position today take that money and buy something better...compounding the returns...the math and time is their advantage...deserving a premium. Level 3 is paying 10% plus (they own the convertible bonds) so yes they are receiving income...Are USG paying dividends? Do you like shaw carpets or OSTK better...seems to me that Amazon is doing pretty well...how is the carpet business? Dazel.
ERICOPOLY Posted November 5, 2009 Posted November 5, 2009 Ericopoly, I will bite. What are the dividends exactly that Berkshire is getting from those dog businesses they own? They are losing money no dividends...USG is an example of a lot of Berkshire businesses...right now...(I know they do not own it all but I will use it as an example) If you think that liquidity does not deserve a premium right now...I would like to move to your world. Fairfax could buy the bad companies the Berkshire owns at a fraction of what they were worth years ago because they have liquidity. The example is USG where Fairfax did do this..they were a $60 company which Fairfax purchased for $6 with a 10% yield. If you were to take the bad companies that Berkhire has across the board and take the multiples the same way USG trades well...you see my point. Fairfax could sell thier USG position today take that money and buy something better...compounding the returns...the math and time is their advantage...deserving a premium. Level 3 is paying 10% plus (they own the convertible bonds) so yes they are receiving income...Are USG paying dividends? Do you like shaw carpets or OSTK better...seems to me that Amazon is doing pretty well...how is the carpet business? Dazel. Dazel, No bait -- I am not baiting you. You say you "will bite" but just don't start taking this the wrong way. Your comment about a "liquidity premium" of sorts for fractional ownership goes against my thinking, which has been influence by watching Buffett buy companies whole when he could instead continue to buy fractional shares to retain an "advantage". My point for mentioning a couple of Fairfax's businesses on a per share basis was to demonstrate that they don't have control over the underlying cash flows the way Berkshire does with it's wholly owned businesses, nothing more. Retaining the right to have a say in the operations is an advantage in my opinion, and I don't think it should be worth a discount. I picked bad examples, they didn't demonstrate the point. Let's ask another question... if per-share ownership is such a dramatic advantage that it's worth a premium vs full ownership, then why does Buffett prefer full ownership positions? I think Fairfax even mentioned something about increased flexibility when they took the rest of NB and ORH.
Guest Dazel Posted November 5, 2009 Posted November 5, 2009 Ericopoly, Love the conversation. Very constructive...I would have agreed with you pre crash..things have changed...Fairfax can reload on the best of businesses both parts and whole companiesand on per share book value basis this their ace in the whole. I like the idea on having control of the cash as well...However, a lot of Berkshire's businesses are bleeding...Berkshire is too big to buy parts of compnaies and make a dent. Berkshire gained its bookvalue through public companies not the ones it owns...Coke as an invetsment was worth a third of Berkshire's market cap in 1990. Buffett would rather be where Fairfax is..one investment with the liquidity they have changes the company...Berkshire does not have that luxury or opportunity unless you think Sante Fe is the game changer...they do not have the abilkity to have another public ciompany home run like Coke, amex, gillette..Fairfax does. Dazel.
ERICOPOLY Posted November 5, 2009 Posted November 5, 2009 Ericopoly, Love the conversation. Very constructive...I would have agreed with you pre crash..things have changed...Fairfax can reload on the best of businesses both parts and whole companiesand on per share book value basis this their ace in the whole. I like the idea on having control of the cash as well...However, a lot of Berkshire's businesses are bleeding...Berkshire is too big to buy parts of compnaies and make a dent. Berkshire gained its bookvalue through public companies not the ones it owns...Coke as an invetsment was worth a third of Berkshire's market cap in 1990. Buffett would rather be where Fairfax is..one investment with the liquidity they have changes the company...Berkshire does not have that luxury or opportunity unless you think Sante Fe is the game changer...they do not have the abilkity to have another public ciompany home run like Coke, amex, gillette..Fairfax does. Dazel. I'm actually not at all upset, but I can see you are pissed off so I'll stop inverting your idea. Maybe you are having a bad day, maybe you don't like to be questioned, maybe you don't like me, maybe you think I am going after you, I have no idea. I actually thought it was a constructive conversation because you are the first person I've heard argue that companies should trade at a premium if they are invested in common stocks and other liquid assets. I had just never before heard that anywhere and was following up with questions to see if you had a special insight, but you are responding as if I stepped on your foot.
twacowfca Posted November 6, 2009 Posted November 6, 2009 Eric&Dazel, Prem gave the answer to the questions you posed at a NYC investor's conf in 03. I asked if FFH would ever buy whole, non insurance Operating cos. He said no. That was outside his area of competence. That would also crimp the flexibility FFH needed to be nimble to meet regulatory requirements and liquidity. However, he admired Buffett for being able to do this, and he felt that this skill was a great asset and luxury that BRK had.
omagh Posted November 6, 2009 Posted November 6, 2009 As Fairfax grows, Watsa or his successor may change. Watsa has a history of making public pronouncements and changing later -- he now holds conference calls, he now eschews large debt-to-capital ratios, he continually issues shares below intrinsic value, etc. In short, don't put 100% stock in all of Watsa's public comments. I think that Watsa is still a good jockey, he's shown an ability to learn and grow as a leader, but I've learned to be sceptical in the 10 years that I've been a shareholder. When procuring whole companies, Buffett puts special emphasis in each of his deals on having management teams in place that have an owner mentality. That frees him up from wading in and engaging in operational and strategic issues. His Saloman Brothers purchase in the late 80's being an obvious exception which occupied him for a year or more. Watsa or his successor will probably do something similar when the need arises. The third company being followed by this set of boards (SNS) has a CEO in Biglari who is very operationally focused and has the stamina of youth at the moment. Biglari will need to grow his management teams to succeed at larger scales as he puts more capital to work. Fairfax is starting down the whole company ownership path with Ridley and Advent. These are just investments at this point in time, but in the future, it may not make sense to hold back a few 10's or 100's of millions if there's a sharp, competent management team looking for a long-term owner. We'll see...check back in 5 or 10 years :) http://ca.news.finance.yahoo.com/s/24092008/2/biz-finance-fairfax-financial-swallows-69-cent-feed-producer-ridley.html From 2008 Annual... We have positions in two other companies which are only investments, even though the fact that we own over 50% of those companies requires that they be consolidated on our financial statements. In November 2008 we paid $68 million to purchase 67.9% of the shares of Ridley Inc., one of North America’s leading commercial animal nutrition companies, and during 2008 we purchased $25.6 million of additional shares of Advent, bringing our ownership of that company to 66.6%. -O Eric&Dazel, Prem gave the answer to the questions you posed at a NYC investor's conf in 03. I asked if FFH would ever buy whole, non insurance Operating cos. He said no. That was outside his area of competence. That would also crimp the flexibility FFH needed to be nimble to meet regulatory requirements and liquidity. However, he admired Buffett for being able to do this, and he felt that this skill was a great asset and luxury that BRK had.
StubbleJumper Posted November 6, 2009 Posted November 6, 2009 FFH may also end up with whole ownership of The Brick......
ERICOPOLY Posted November 6, 2009 Posted November 6, 2009 There are still some big public companies out there that Buffett is passing up to buy the rest of BNI. He is passing up GE, JNJ for example (both Fairfax favorites). Owns a little of JNJ already, but could certainly own a lot more. Doesn't own much of GE at all. He could have bought enormous amounts of both on a fractional basis, but prefers to own the whole of BNI. I haven't really seen Fairfax do much trading in this past year. They've been buyers the past year, but not much selling. Much of their flexibility comes from the S&P500 hedge, and that's something that Buffett could have done if he had wanted to.
Guest Dazel Posted November 7, 2009 Posted November 7, 2009 Ericopoly, I am certainly not pissed off! I enjoy the conversation and I admire your posts and your intellect. There is no right or wrong here. Your view prevails during normal times...for normal companies. Fairfax are one of the best capital allocators in the world.That is what they are good at. The premium should lie in their ability to allocate capital and the environment they are in. If we were back in 2006 and they had a ton of liquidity who cares! There was not much to buy and prices were high. In this environment Fairfax on a per share basis is in the best shape of nearly anyone on the planet who is in the capital allocation business. They can buy anything they want. They are not Google or Apple (Iwill get away from Berkshire) the premiums those great businesses command are justfied from their operations...liquidity means nothing to them which you are saying and I agree with you. If Fairfax were to be viewed as capital allocators should they get a premium? Leucadia is already all in with 3 companies...they have used their shares as currency but their upside is limited. Why? They have limited resources per share to invest in this environment no liquidity. Fairfax will make a lot of money now and in the next couple of years because of the investments they are making now..and are able to make now. If a share split could help them on using their share price as currency they would be better off. The answer really is we do not know whether a split would give them a premium...so we are splitting hairs. Dazel.
ERICOPOLY Posted November 8, 2009 Posted November 8, 2009 Ericopoly, I am certainly not pissed off! I think you're right. Too much Disneyland for me. I took something you said earlier for sarcasm, but maybe I was tired. You remind me of the good things Fairfax will bring, basically the points you are making are the reason why I hold 50% Fairfax and 0% Berkshire. I only scratch my head at whether or not the market should price liquidity at a premium... I think it is valuable to have liquidity yet I couldn't see 100% cash (an extreme example) being worth a premium to book. But whatever, I agree they are in pole position.
gurjot Posted November 10, 2009 Posted November 10, 2009 there is a very famous newsletter wrtier which doesnt buy any stock value more than $10.00 their reason is if stock price is 3 dollars it is very easy for it to go to 10.00 than for a 300 to a 1000. In my opinion low share price does increase volatility and it is up to us the investors to take advantage of it. the premium on options is more and people trade it more often. I am looking forward to brkb stock split and would welcome if ffh did the same. And by the way i been holding both of these since about year 2000 thanks pinder
oec2000 Posted November 10, 2009 Posted November 10, 2009 there is a very famous newsletter wrtier which doesnt buy any stock value more than $10.00 their reason is if stock price is 3 dollars it is very easy for it to go to 10.00 than for a 300 to a 1000. There is a very famous investor who believes that stock splits do nothing to increase the intrinsic value of a company. This investor has become one of the richest men on earth by having 99% of his wealth invested in the most expensive stock (price per share) in the world. I think there are 40 billion reasons to trust the investor more than the newsletter writer.
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