MMM20 Posted September 22 Share Posted September 22 (edited) Devils advocate = “only the paranoid survive” -Andy Grove. The exponent is really the key thing to compounding. I’m still not sure I’m not missing something. The platonic ideal portfolio would be hundreds of high return low risk ideas known equally well, right? Not possible, so Fairfax is still 30%+ which is enough to drive great performance if we’re right but won’t break the bank if some black swan shows up. I think every investor has to go through multiple big drawdowns to know how they’ll manage through it. Many of us haven’t yet. That’s the “personal” part or personal finance and concentration decisions. Edited September 22 by MMM20 Link to comment Share on other sites More sharing options...
This2ShallPass Posted September 22 Share Posted September 22 14 hours ago, Blugolds said: Never quite understood tremendous aversion to large position sizes 30+% in one company is a large position. There's some position where it does become risky, no matter how confident you are about the company. The world is constantly changing, you will have curveballs. Things that are completely outside your ability to predict will happen and sometimes even outside the control of the company. You don't want to get knocked out of the game when something like that hits. And, Fairfax is not Berkshire or Costco. They have done nothing but make great decisions these past 5 years, but they do tend to take big swings, positive (GFC) or negative (hedging). 4 hours ago, SafetyinNumbers said: In terms of external catalysts, I don’t see the point of trimming any until the 60 add is announced at least. Do you think it'll happen in the next 6 months or so? We have been waiting for it for a while. Link to comment Share on other sites More sharing options...
wisowis Posted September 22 Share Posted September 22 You're all saying "Never quite understood tremendous aversion to large position sizes" and "I never understood the concept of 'positioning'." ...meanwhile, the guy saying he has 40+% of his portfolio in Fairfax had his (previously) largest equity position go to zero last year. The world is an unpredictable place, and diversification is protection against that unpredictability, not just protection against an investor's knowledge (or lack thereof) about a business. The more concentrated you are, the lower the probability events that you need to consider...because any sequence multiplied by 0 is 0. If you have your entire portfolio in FFH, I hope (for instance) that you have modeled what would have happened in the depths of the COVID crisis, when FFH was seriously strained, if there had been a super-cat event and they had TRS swaps in their portfolio where they needed to post additional collateral at the same time. While I do hold a significant amount of Fairfax, I, personally, am not concentrated enough to care about the very, very low probability events. Link to comment Share on other sites More sharing options...
UK Posted September 22 Share Posted September 22 4 hours ago, wisowis said: ...meanwhile, the guy saying he has 40+% of his portfolio in Fairfax had his (previously) largest equity position go to zero last year. I feel, like I missed something, what went to zero last year? Link to comment Share on other sites More sharing options...
wisowis Posted September 23 Share Posted September 23 1 hour ago, UK said: I feel, like I missed something, what went to zero last year? Atento Link to comment Share on other sites More sharing options...
SafetyinNumbers Posted September 23 Share Posted September 23 2 hours ago, UK said: I feel, like I missed something, what went to zero last year? He’s referring to me. I had a position in Atento that went to zero. I can’t really get into a post mortem as I had signed a lock up agreement that restricts what I can say. That position peaked around 15% of market value and had a cost basis around 8%. Fairfax is about ~20% on cost as I have been adding on the way up. There are no sure things. I make risk adjusted bets and I expect to be wrong about a third of the time. Taking a zero on Atento didn’t change my life (except the pain of course) and taking a zero on FFH wouldn’t either except I will stop talking and writing about stocks publicly if that happens. I share in part because I think I have good ideas. I’m not interested in people losing money because they discovered an idea through me. Link to comment Share on other sites More sharing options...
SafetyinNumbers Posted September 23 Share Posted September 23 9 hours ago, This2ShallPass said: Do you think it'll happen in the next 6 months or so? We have been waiting for it for a while. There has to be an opening first. Buybacks continue in the meantime. I see no reason to sell into those either. Link to comment Share on other sites More sharing options...
SafetyinNumbers Posted September 23 Share Posted September 23 23 minutes ago, wisowis said: Atento Thanks for the assist. Link to comment Share on other sites More sharing options...
UK Posted September 23 Share Posted September 23 (edited) 23 minutes ago, SafetyinNumbers said: He’s referring to me. I had a position in Atento that went to zero. I can’t really get into a post mortem as I had signed a lock up agreement that restricts what I can say. That position peaked around 15% of market value and had a cost basis around 8%. Fairfax is about ~20% on cost as I have been adding on the way up. There are no sure things. I make risk adjusted bets and I expect to be wrong about a third of the time. Taking a zero on Atento didn’t change my life (except the pain of course) and taking a zero on FFH wouldn’t either except I will stop talking and writing about stocks publicly if that happens. I share in part because I think I have good ideas. I’m not interested in people losing money because they discovered an idea through me. Thanks for sharing! It is good investing is not the same like flying some passenger plane (talk about anxiety) and mistakes are allowed (even Buffett has had some zeroes). Also, what matters more is how much you make when you are right, so concentrating fully makes sense in my mind for this and many other reasons. Everything is possible, but I actually think that probability of FFH going to zero is almost zero, unless the whole marked does something similar, in which case, I assure, everyone will have far biger problems and things to worry, than zeroes in their portfolios:). Everyone is 100 percent responsible for his investment decisions no mater how they were discovered:) Edited September 23 by UK Link to comment Share on other sites More sharing options...
This2ShallPass Posted September 23 Share Posted September 23 16 minutes ago, SafetyinNumbers said: taking a zero on FFH wouldn’t either except I will stop talking and writing about stocks publicly if that happens. Losing 40% of your pf won't change your life? If that's the case, then taking big swings is ok...you might be at a point in life where investment returns are not meaningful enough for your personal wealth. Link to comment Share on other sites More sharing options...
SafetyinNumbers Posted September 23 Share Posted September 23 1 minute ago, This2ShallPass said: Losing 40% of your pf won't change your life? If that's the case, then taking big swings is ok...you might be at a point in life where investment returns are not meaningful enough for your personal wealth. I will be very depressed I’m sure but that’s more about looking/feeling stupid. I don’t have kids and I’m not into material possessions so that helps keep spending down. Link to comment Share on other sites More sharing options...
SafetyinNumbers Posted September 23 Share Posted September 23 8 minutes ago, UK said: Everyone is 100 percent responsible for his investment decisions no mater how they were discovered:) For sure but I share to be helpful not to be a menace to society. Link to comment Share on other sites More sharing options...
UK Posted September 23 Share Posted September 23 (edited) 23 minutes ago, This2ShallPass said: Losing 40% of your pf won't change your life? If that's the case, then taking big swings is ok...you might be at a point in life where investment returns are not meaningful enough for your personal wealth. Health is lost something is lost, money is lost nothing is lost:). Having said this, losing 40 percent, while still would not be a big tragedy, it would definitely be a big hit and change my life somewhat...so I try to cape my possible bigest loss at ~20 percent, which is as big as your usual bear market and so should be managable psychologically and otherwise. This would imply FFH going down 50 percent if your total allocation for it is 40 percent. Currently it would mean for it to trade at ~0.6 PBV of pre some event BV. Perhaps less impossible than going to zero (this even has had happened in the past), but still, perhaps I see way less than 10-20 or even 5 percent probability of this to happen over say next 5-10 years. How do other think? Edited September 23 by UK Link to comment Share on other sites More sharing options...
Parsad Posted September 23 Share Posted September 23 12 minutes ago, UK said: Thanks for sharing! It is good investing is not the same like flying some passenger plane (talk about anxiety) and mistakes are allowed (even Buffett has had some zeroes). Also, what matters more is how much you make when you are right, so concentrating fully makes sense in my mind for this and many other reasons. Everything is possible, but I actually think that probability of FFH going to zero is almost zero, unless the whole marked does something similar, in which case, I assure, everyone will have far biger problems and things to worry, than zeroes in their portfolios:). Everyone is 100 percent responsible for his investment decisions no mater how they were discovered:) This may be true, but the S&P500 and Dow have never gone to zero...not even during the Great Depression or Financial Crisis. I'm not sure that would have been the case with many financial companies if government bailouts and capital injections weren't available. That being said, I think concentration is dependent on the person investing. What is your psychological makeup, what lets you sleep at night, where are you in terms of retirement or needing that capital for day to day expenses, how much debt do you have, are you responsible for the welfare of other people, etc. 10-20 years ago, I would have no problem being in 3-5 stocks and at times 1 or 2. But I was looking for grand slams...100%-200% returns over 2-3 years. As I approach retirement, I'm only looking for doubles and the occasional homerun...15-20% annualized returns. And I'm very comfortable sleeping at night. I have enough money to retire very comfortably...not rich...but very comfortable. And that money will continue to grow for another two decades. Meaning, in another decade, I may decide that I'm content with just singles and doubles...8-12% annual returns. Thing is, with my options investments in my trading accounts...even with singles and doubles...I'm getting 15-20% annualized. And because I don't spend a whole lot, I may end up retiring rich, while still sleeping very comfortably. Lastly, don't fall in love with any stock! Cheers! Link to comment Share on other sites More sharing options...
UK Posted September 23 Share Posted September 23 7 minutes ago, Parsad said: This may be true, but the S&P500 and Dow have never gone to zero...not even during the Great Depression or Financial Crisis. I'm not sure that would have been the case with many financial companies if government bailouts and capital injections weren't available. That being said, I think concentration is dependent on the person investing. What is your psychological makeup, what lets you sleep at night, where are you in terms of retirement or needing that capital for day to day expenses, how much debt do you have, are you responsible for the welfare of other people, etc. 10-20 years ago, I would have no problem being in 3-5 stocks and at times 1 or 2. But I was looking for grand slams...100%-200% returns over 2-3 years. As I approach retirement, I'm only looking for doubles and the occasional homerun...15-20% annualized returns. And I'm very comfortable sleeping at night. I have enough money to retire very comfortably...not rich...but very comfortable. And that money will continue to grow for another two decades. Meaning, in another decade, I may decide that I'm content with just singles and doubles...8-12% annual returns. Thing is, with my options investments in my trading accounts...even with singles and doubles...I'm getting 15-20% annualized. And because I don't spend a whole lot, I may end up retiring rich, while still sleeping very comfortably. Lastly, don't fall in love with any stock! Cheers! +1. I agree, this is very personal and evolves with circumstances. What is probability if FFH going to zero (while total market only halving at worst) over the next ten years in your opinion? Link to comment Share on other sites More sharing options...
SafetyinNumbers Posted September 23 Share Posted September 23 30 minutes ago, Parsad said: Thing is, with my options investments in my trading accounts...even with singles and doubles...I'm getting 15-20% annualized. And because I don't spend a whole lot, I may end up retiring rich, while still sleeping very comfortably. Lastly, don't fall in love with any stock! Cheers! What’s your definition of rich? Your returns seem phenomenal. Link to comment Share on other sites More sharing options...
Parsad Posted September 23 Share Posted September 23 31 minutes ago, UK said: +1. I agree, this is very personal and evolves with circumstances. What is probability if FFH going to zero (while total market only halving at worst) over the next ten years in your opinion? Very low. But what if in the next 10 years we face something similar to the Great Depression and governments with their heavy debt loads don't have the firepower to get us out of it in a couple of years? It's not FFH's exposure I'm worried about, but we know as financial dominoes fall, there is always collateral damage. I think Costco and Walmart have a better chance of surviving than Fairfax in a Great Depression. Probably other essential companies would survive that didn't use much or any leverage. So a diversified ETF would probably drop 75-80%, but would survive and rebound. I can't say that with any certainty about a single stock. That being said, I have a high exposure to Fairfax and probably always will. When it was dirt cheap, it did make up over 50% of my non-taxable portfolios and even with sales, it still stayed at 50% for a long-time. Today, it makes up about 20% of the non-taxable portfolios, but still makes up about 33% of my taxable portfolio, where I retained 80% of the original purchases. But a little while ago, I decided that any new additions to that taxable portfolio will be dollar cost averages of VOO (S&P500 ETF). That way, I don't have to worry about capital gains anymore, since I won't be selling it and won't worry about valuation...just keep buying with whatever cash I add each year. Cheers! Link to comment Share on other sites More sharing options...
wisowis Posted September 23 Share Posted September 23 (edited) 1 hour ago, SafetyinNumbers said: He’s referring to me. I had a position in Atento that went to zero. I can’t really get into a post mortem as I had signed a lock up agreement that restricts what I can say. That position peaked around 15% of market value and had a cost basis around 8%. Fairfax is about ~20% on cost as I have been adding on the way up. There are no sure things. I make risk adjusted bets and I expect to be wrong about a third of the time. Taking a zero on Atento didn’t change my life (except the pain of course) and taking a zero on FFH wouldn’t either except I will stop talking and writing about stocks publicly if that happens. I share in part because I think I have good ideas. I’m not interested in people losing money because they discovered an idea through me. Thanks for your candor. Hope you don't mind if I press a bit... I thought I recalled you saying that atento was at your maximum position size. You've now stated the size of that position, and it seems FFH is now ~3x larger than your previous maximum position size (marking to market). Could you tell us what changed in your process? Or is it that FFH is such a high-conviction idea that you've over-ridden your rule? And to Parsad's point; some people sure are a lot braver than I could ever be. I follow closely with his "singles and doubles" investment philosophy. My PA is now the result of many years of work, but not (yet) comfortable enough to retire on. I suspect many of those that concentrate either have PA's smaller (worth it take the risk since you haven't spent that much time accumulating) or larger (not as painful when you don't need the money) than me. Or simply braver Edited September 23 by wisowis spelling Link to comment Share on other sites More sharing options...
Parsad Posted September 23 Share Posted September 23 22 minutes ago, SafetyinNumbers said: What’s your definition of rich? Your returns seem phenomenal. $10M+. Returns outside of PDH have been phenomenal. I've averaged about 20% annualized for 20 years on my personal investments. You take out PDH and we've done about 18% annualized in MPIC Fund I, LP since 2006...too bad I can't do that! Cheers! Link to comment Share on other sites More sharing options...
SafetyinNumbers Posted September 23 Share Posted September 23 2 minutes ago, wisowis said: Thanks for your candor. Hope you don't mind if I press a bit... I thought I recalled you saying that atento was at your maximum position size. You've now stated the size of that position, and it seems FFH is now ~3x larger than your previous maximum position size (marking to market). Could you tell us what changed in your process? Or is it that FFH is such a high-conviction idea that you've over-ridden your rule? Atento was the biggest position size I ever had (personally) before Fairfax. My process is probably not as rigorous as most and I have never been great at position sizing. At some point (2019 probably) I decided I needed to let winners run after watching too many of them get away from me as I wasn’t thinking enough about the right tail and was selling to avoid drawdowns. I thought it was a form of resulting to stop that mindset because Atento didn’t work out. Ultimately, I do think with FFH it’s very hard for book value to compound under 10% for the next 5 years and that’s my hurdle rate. It’s the highest conviction idea I have ever had where I think the downside is so limited and the right tail so wide open in the medium term (5 years). But I could be wrong. Link to comment Share on other sites More sharing options...
SafetyinNumbers Posted September 23 Share Posted September 23 14 minutes ago, Parsad said: $10M+. Returns outside of PDH have been phenomenal. I've averaged about 20% annualized for 20 years on my personal investments. You take out PDH and we've done about 18% annualized in MPIC Fund I, LP since 2006...too bad I can't do that! Cheers! Congratulations 20% CAGR for 20 years is 38x but that’s before taxes. I’m at ~18% in the past 12 years. After leaving the UBS prop desk in 2012, I couldn’t find a gig where I had the same responsibility so I started by focusing on singles and doubles to make sure I wasn’t forced into a job I wouldn’t like. Once I could afford bigger drawdowns, I started to take more risk. I hope it works out. Link to comment Share on other sites More sharing options...
UK Posted September 23 Share Posted September 23 41 minutes ago, Parsad said: Very low. But what if in the next 10 years we face something similar to the Great Depression and governments with their heavy debt loads don't have the firepower to get us out of it in a couple of years? It's not FFH's exposure I'm worried about, but we know as financial dominoes fall, there is always collateral damage. I think Costco and Walmart have a better chance of surviving than Fairfax in a Great Depression. Probably other essential companies would survive that didn't use much or any leverage. So a diversified ETF would probably drop 75-80%, but would survive and rebound. I can't say that with any certainty about a single stock. That being said, I have a high exposure to Fairfax and probably always will. When it was dirt cheap, it did make up over 50% of my non-taxable portfolios and even with sales, it still stayed at 50% for a long-time. Today, it makes up about 20% of the non-taxable portfolios, but still makes up about 33% of my taxable portfolio, where I retained 80% of the original purchases. But a little while ago, I decided that any new additions to that taxable portfolio will be dollar cost averages of VOO (S&P500 ETF). That way, I don't have to worry about capital gains anymore, since I won't be selling it and won't worry about valuation...just keep buying with whatever cash I add each year. Cheers! Thanks for your elaborate answer! Link to comment Share on other sites More sharing options...
giulio Posted September 23 Share Posted September 23 It looks to me as people are assuming that ffh could drop 50%+ in one single session. What could trigger such event? Fraud accusations? Insufficient/overstated reserves? What's the probability of that happening? Why would a thoughtful, concentrated investor, having followed the company for many years, not being able to exit at a smaller loss? Btw, Thank you @SafetyinNumbers and @Parsad for sharing your thoughts. And congratulations on the terrific results!! G Link to comment Share on other sites More sharing options...
UK Posted September 23 Share Posted September 23 (edited) 4 hours ago, giulio said: It looks to me as people are assuming that ffh could drop 50%+ in one single session. What could trigger such event? Fraud accusations? Insufficient/overstated reserves? What's the probability of that happening? Why would a thoughtful, concentrated investor, having followed the company for many years, not being able to exit at a smaller loss? Btw, Thank you @SafetyinNumbers and @Parsad for sharing your thoughts. And congratulations on the terrific results!! G I am not assuming or forecasting this in any way, other than using such assumption for stress testing, as a worst case scenario (say market panic and unrelatedly some big cat event) to evaluate possible hit to portfolio, which would be temporary perhaps, but nevertheless, I would prefer it to not exceed 20 percent from total portfolio with any position. I think even Buffett has said, that BRK went down ~50 percent for a few times in its history and that any stock investor should be prepared for such a possibility. Edited September 23 by UK Link to comment Share on other sites More sharing options...
nwoodman Posted September 23 Share Posted September 23 1 hour ago, giulio said: It looks to me as people are assuming that ffh could drop 50%+ in one single session. What could trigger such event? It may have nothing to do with FFH, a market wide margin call would have this baby throw out with the bath water in a heart beat, just the same with Berkshire. The point is to not get called yourself called or have the stomach to sit through it even with no margin. Hence the stress testing. In a 50% off market sale, is Fairfax going to be your number 1 pick? Link to comment Share on other sites More sharing options...
Recommended Posts
Create an account or sign in to comment
You need to be a member in order to leave a comment
Create an account
Sign up for a new account in our community. It's easy!
Register a new accountSign in
Already have an account? Sign in here.
Sign In Now