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FFH BuyBacks


Uccmal
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Last year FFH bought back 1 Million shares for 282 Million.  The average price was therefore $282/share.  Right now the share price is 245-250.  Can I assume that 1/4 of the daily trade is being bought by FFH?

 

They have a veritable war chest of cash to put to work on this.  Conceivably by year end they could pull in 4-5 Million shares.  This should have the effect of putting a floor under the stock. 

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I think its impossible to tell, if they feel like they'd be getting at least 15% after tax from buying other stocks it can be a tough decision because the credit agencies aren't giving them any love for the buybacks.

 

As far as I'm concerned they put 3.6 billion dollars to work (FFH+Orh+Nb.to +2.4 billion common stock) last year at 15+% after taxes or 30$ a share per year...

 

They've added more to intrinsic value in 2008 than the current market cap.   Cheers guys!

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Guest ericopoly

I suppose they will look at buying shares at a discount to book.

 

So I was looking at insured munipical bond mutual funds tonight, trying to see how Fairfax might be doing.

 

EIM (long insured muni fund) is up 22% YTD.

NITNX (intermediate insured muni fund) is up 4.63% YTD.

 

It sounds like Fairfax is invested in intermediate term insured muni bonds, so let's say they did 4.63% YTD.

 

We know the muni portfolio is the same size as their equity portfolio, and the other half of the bond portfolio would be in corporates I presume since they said they sold their government bonds.

 

They have credit default swaps with notional that is double their corporate bond portfolio.  It is entirely possible that the CDS gains there have offset their mark-to-market corporate bond losses. 

 

Pimco's Corporate Income Fund (PCN) is down... get this... 33% YTD!  That fund now has a yield of 17.6%.

 

 

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I don't understand why they didn't buy back any ORH in Q4.  They bought none, yet it traded down to $32.

 

It may have been an issue of exactly how big was ORH's discount to intrinsic value (even at $32) compared to what else had suddenly become available in the markets during Q4.  Companies shouldn't just simply buy back their shares when they have excess operating capital, but only if the best alternative for shareholder capital is to buyback one's own stock.  Cheers!

 

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Guest ericopoly

I don't understand why they didn't buy back any ORH in Q4.  They bought none, yet it traded down to $32.

 

It may have been an issue of exactly how big was ORH's discount to intrinsic value (even at $32) compared to what else had suddenly become available in the markets during Q4.  Companies shouldn't just simply buy back their shares when they have excess operating capital, but only if the best alternative for shareholder capital is to buyback one's own stock.  Cheers!

 

 

 

I will look back on this period as short term pain for long term gain. 

 

I also love this aspect of investing in other companies rather than their own stock (to quote Warren's new letter).  Points #1 and #3:

 

 

In good years and bad, Charlie and I simply focus on four goals:

(1) maintaining Berkshire’s Gibraltar-like financial position, which features huge amounts of

excess liquidity, near-term obligations that are modest, and dozens of sources of earnings

and cash;

(2) widening the “moats” around our operating businesses that give them durable competitive

advantages;

(3) acquiring and developing new and varied streams of earnings;

(4) expanding and nurturing the cadre of outstanding operating managers who, over the years,

have delivered Berkshire exceptional results.

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Guest ericopoly

I don't understand why they didn't buy back any ORH in Q4.  They bought none, yet it traded down to $32.

 

It may have been an issue of exactly how big was ORH's discount to intrinsic value (even at $32) compared to what else had suddenly become available in the markets during Q4.  Companies shouldn't just simply buy back their shares when they have excess operating capital, but only if the best alternative for shareholder capital is to buyback one's own stock.  Cheers!

 

 

 

I don't know, I've been giving the topic more thought this morning.  I think buying ORH at $32 would have been obviously a more attractive deal than anything out there.

 

The way I see it, their equities are like individual bottles of booze, and their book value is like a bulk shipment of booze.  Buying it at bulk at a discount is the way to go if the discount is there.  They've already allocated the book value to the cheapest stuff they can find -- but buying it below book is like getting it even cheaper still.

 

So, I think it might have been a question of preserving liquidity given that they started to take on more risk when they dropped the hedges.  Plus they were planning to take NB private, and that uses up a lot too.

 

Who knows, maybe Prem will elaborate someday.

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Prem got into the insurance business mainly for the float.

 

He has built himself and the company one hell of a float with respect to the size of the company. At some point the ship becomes too large that it is not very agile to turn when you may like.

 

I felt a way back that all things considered, he would prob like to dilute the insurance aspect of the Corp.  I like what he is doing. It can be a tough game this insurance/underwriting/reserving.

 

Looking back - there were some scary times. We got out of it ok. There were many times (most the vets here would remember) we (mgt) did things we didnt want/like to do. The costs of the hedging etc etc.  The once in 50 - 100 yr events that we got more than once.

 

Well, its great to see how we made out in the latest "event".

Now, lets go make some donuts for a while ;D

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Now, lets go make some donuts for a while

 

Or sell some animal feed....

 

Eric, How are you determining the returns on Muni bonds, and what duration are you using.  Just curious.  Your always a step ahead.  A.

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Ericopoly,

 

It traded at 32 for part of a day if I remember.  I think ORH is tempering buy-backs with maintaining capital to expand in the coming hard market.  Also, a lot of the major gains in book value per share came late in Q4 when stocks and long treasury bonds went up so that did not give them that much time to buy at a discount to year-end book. 

 

I think if the stock trades back significantly below book, they will start buying it again.  At that point, I will add to my position potentially.  Remember also that ORH has less downside exposure to the stock market relative to the parent as the ratio of equities divided by common equity at ORH is lower than at the parent.  So, I love it that they are not buying it back yet.  Let it drop, I'll but more.

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Guest ericopoly

Now, lets go make some donuts for a while

 

 

Eric, How are you determining the returns on Muni bonds, and what duration are you using. 

 

I found some insured muni bond funds and just figured whatever Fairfax owns is at least that good (given that BH insurance is the best).

 

EIM (long insured muni fund) is up 17.2% YTD.

NITNX (intermediate insured muni fund) is up 4.72% YTD.

 

So I think NITNX is a better proxy for Fairfax's muni bonds, given that Prem stated a 7-10 yr term (intermediate).

 

Quoting Prem from the conference call:

 

"Our muni bonds are in that seven or 10 year term. They're callable, not portable, but callable at 10 years, but the maturities of course can last longer than that. But they're callable between seven and 10 year, and we think it's likely they'll be called at that time."

 

 

 

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they're 7-10 year maturities, I was messing around with a calculator which indicates that they can mark these things up another 20-25% based on where 7-10 years treasuries are today (I believe they already wrote them up by 5% by year end).  But thats is all financial bs because the interest is tax free, while capital gains are not. 

 

 

 

 

 

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I have to assume that on a day (or week) like this they are buying back stock hand over fist. In addition, I would be surprised if they didn't cash out the rest of their CDS here - if they haven't already. I expect them to hold the CDS related to RR until maturity and maybe roll it, but the speculative stuff is probably heading out the door.

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it adds up...

 

I would be very susrprised if they are not buying stock back (based on last years action, comments are their capital flexibility).

 

However, it could be a pleasant surprise since that would mean they are buying something that they understand better and consider it cheaper, a very very high threshold.

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