FFH vs Cash in a Market Correction

[ICUMD]

Hi there.  New to this board.  I am interested in learning about peoples perspectives on the safety of FFH is a market correction.  Give the high Shiller PE ratio, I think we are at risk of a significant one.  How does one value the current hedging book of FFH vs holding Cash in one's account?

[gfp]

don't buy equities - FFH or otherwise - if what you want is cash.  There is no substitute for liquid cash if that's what you're wanting.  If you like FFH at these prices and want to make an investment with risk assets you don't want in cash, it's probably not a bad time to add.  But don't think of it as a cash substitute - think of it as an investment in an insurance company's equity.  Contrary to a lot of the talk on this board, I have recently been purchasing Fairfax shares - on each of the 3 recent dips.  I like it - but you can read plenty here on the board about the reasons others have soured on it recently.

[T-bone1]

FFH is much less hedged currently than they have been in the past - particularly with regard to the massive fixed income "hedges" they held in 2008.

 

Even in 2008, the stock went down initially even as the intrinsic value was soaring - you would have been better holding cash.

[TwoCitiesCapital]

FFH is much less hedged currently than they have been in the past - particularly with regard to the massive fixed income "hedges" they held in 2008.

 

Even in 2008, the stock went down initially even as the intrinsic value was soaring - you would have been better holding cash.

 

This. FFH is only half hedged and sold a ton of their duration.

 

They won't be going gangbusters in a market sell-off any more so it's pretty much out of the question to expect them to outperform cash in the short/medium term if a market correction occurred.

[KinAlberta]

You'll read that portfolios are hedged but you never know whether it's a perfect or imperfect hedge. Often it's far, far from a perfect hedge where a portfolio doesn't match the market but the hedge does. So some 'hedges' can generate lessor gains than that lost in the portfolio and other times more profit well above the value of the portfolio, but only if the right pricing/market conditions are met. Then those hedges have to be closed out and that's just one more variable. (Think of those doom and gloom people that buy loads gold and when things look rough, they hold it even tighter, riding it up and then back down. Same for cash rich companies that hold tight during time of maximum opportunity.)

 

 

[Haasje]

Not a supporter of the Berkshire/FFH instead of cash arguments. Sometimes cash is much better and usually the other way around.

[captkerosene]

Better to own vultures like FFH or BRK or BAM than to sit in cash. Each of those companies eventually prosper from the disruption and give you a nice return when the world isn't blowing up.

[james22]

All were down bigly 2007-2008 (and could have been bought with cash then).

[chrispy]

If one has the patience and aptitude to buy when stocks go down, that is your best bet.  Investing in companies that have a track record of doing this well for their shareholders is the second best option.

[petec]

If one has the patience and aptitude to buy when stocks go down, that is your best bet.  Investing in companies that have a track record of doing this well for their shareholders is the second best option.

 

This.  The "FFH is a substitute for cash" argument works great for those who feel cash is burning a hole in their pockets.  Some are comfortable holding cash, some are not.  Understand which you are and act accordingly.