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Berkshire vs Fairfax


Tadimety
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Who would have thought FRFHF will be negatively correlated to BRKA. See the charts over the last few years. My thinking as a decades old owner of both the stocks was FRFHF will generate amplified returns of BRK. Since 2008, we learnt Buffett and Munger are better Micro as well as Macro Value investors. While FRFHF makes a one directional bet that the Fed's balance sheet is over leveraged, BRK took a position we will not fight Fed. Now I understand BRK Wisdom and not just FRFHF knowledge!

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My personal assessment is over 10 years-

 

1) 90% odds that BrkA will compound 7-8% (200 basis points over S&P.). 2X -3X in 10 years with 90% odds

2) 60-70% odds FRFHF will compound 10-12% (500 basis points over S&P). 3X-4X in 10 years with 60% odds..

 

Pick based on how conservative or aggressive one is!

 

This is where Kelly's formula comes. Over 10 years it appears clearly FRFHF is a better bet!.

 

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My personal assessment is over 10 years-

 

1) 90% odds that BrkA will compound 7-8% (200 basis points over S&P.). 2X -3X in 10 years with 90% odds

2) 60-70% odds FRFHF will compound 10-12% (500 basis points over S&P). 3X-4X in 10 years with 60% odds..

 

Pick based on how conservative or aggressive one is!

 

This is where Kelly's formula comes. Over 10 years it appears clearly FRFHF is a better bet!.

 

Their profiles have converged to some degree and the return correlation should increase.

 

Assuming BRK and FRFHF are core holdings, how would go about scaling up or down relative positions?

 

Also, assuming your "bet" is not a pure and whole company statistical bet, of the 10-12% CAGR, what do you think will come from 1-underwriting, 2-investments and 3-capital structure decisions (opportunistic share buyback or issue) or do you just assume that component future returns will just revert back to historical means?

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