CIBC says Fairfax is likely to be added to the S&P/TSX 60 in December 2024 - sell decisions

[Castanza]

30 minutes ago, Dinar said:

What is CNSFW?  Cannot find it, thank you.

 

Sorry, typo its....CNSWF (constellation software) 

[modiva]

Fairfax Financials and Fairfax India make up 55% of my portfolio (35% and 20% respectively). My goal is to keep it to around 50% for long time. 

[Castanza]

23 minutes ago, modiva said:

Fairfax Financials and Fairfax India make up 55% of my portfolio (35% and 20% respectively). My goal is to keep it to around 50% for long time. 

Man every time I find myself trying to justify a 50% weighting in a high conviction idea I try to reel myself back in and say “do I need a 40% return to be happy and financially secure? What if my 50% idea trades flat for 5 years, how much does that impact my future required growth for financial independence?” 
 

I usually come back to I only need 10% but I’m happy with 15% and really don’t need 30%. 
 

It’s tempting though… 

[Parsad]

4 hours ago, Castanza said:

Man every time I find myself trying to justify a 50% weighting in a high conviction idea I try to reel myself back in and say “do I need a 40% return to be happy and financially secure? What if my 50% idea trades flat for 5 years, how much does that impact my future required growth for financial independence?” 
 

I usually come back to I only need 10% but I’m happy with 15% and really don’t need 30%. 
 

It’s tempting though… 

 

All depends on temperament, time of life, desired return, etc.  I don't know how old Modiva is, but when I was much younger, I would easily swing for the fences like that, because I didn't have as much money or had time to recover from such risk.

 

But today at 55, comfortable and enjoying life, like you, I don't need to swing for the fences any more and I sleep really well.  Although, I'm pretty sure if I see something just stupidly priced, like Fairfax or Meta was in the last few years, I will take huge positions again.  And just like this time, I will reduce the positions as they rebound and maintain allocations that I'm comfortable with.

 

I just live by my mantra for the last 10 years...never fall in love with any stock or investment.  The goal is the best return you can generate while minimizing permanent loss risk to the portfolio.  The portfolio is what you should love...not the components of the portfolio!  Cheers!

[73 Reds]

10 hours ago, Parsad said:

 

All depends on temperament, time of life, desired return, etc.  I don't know how old Modiva is, but when I was much younger, I would easily swing for the fences like that, because I didn't have as much money or had time to recover from such risk.

 

But today at 55, comfortable and enjoying life, like you, I don't need to swing for the fences any more and I sleep really well.  Although, I'm pretty sure if I see something just stupidly priced, like Fairfax or Meta was in the last few years, I will take huge positions again.  And just like this time, I will reduce the positions as they rebound and maintain allocations that I'm comfortable with.

 

I just live by my mantra for the last 10 years...never fall in love with any stock or investment.  The goal is the best return you can generate while minimizing permanent loss risk to the portfolio.  The portfolio is what you should love...not the components of the portfolio!  Cheers!

Sanjeev, largely agree but does your "do not fall in love with a stock" philosophy have anything to do with tax deferral on cap. gains?  Personally, 99% + % of stocks are held in taxable accounts.  For folks like me with no interest in investing one could do far worse than simply DCA'ing into an S&P 500 index fund or equivalent and going on with life.  For those of us with an interest, buying great stocks at sensible prices and not selling unless money is needed or unless the investment thesis changes also generates desirable results.  What is a great stock?  IMO, one that sells essential products/services, possesses near monopolistic qualities, superior management and capital allocation, enviable balance sheet, and remains profitable in just about any economic cycle.  There aren't too many such companies which makes investing a lot less time consuming.  Buy them when they are cheap in relation to their own historical valuation ranges.   No need to fall in love with any stocks but if they aren't broken, why fix them?   

[yqsun]

12 hours ago, Parsad said:

 

All depends on temperament, time of life, desired return, etc.  I don't know how old Modiva is, but when I was much younger, I would easily swing for the fences like that, because I didn't have as much money or had time to recover from such risk.

 

But today at 55, comfortable and enjoying life, like you, I don't need to swing for the fences any more and I sleep really well.  Although, I'm pretty sure if I see something just stupidly priced, like Fairfax or Meta was in the last few years, I will take huge positions again.  And just like this time, I will reduce the positions as they rebound and maintain allocations that I'm comfortable with.

 

I just live by my mantra for the last 10 years...never fall in love with any stock or investment.  The goal is the best return you can generate while minimizing permanent loss risk to the portfolio.  The portfolio is what you should love...not the components of the portfolio!  Cheers!

 

A (Long) Chat with Peter L. Bernstein

 

"Maximizing return is a strategy that makes sense only in very specific circumstances. In general, survival is the only road to riches. Let me say that again: Survival is the only road to riches. You should try to maximize return only if losses would not threaten your survival and if you have a compelling future need for the extra gains you might earn.

 

The riskiest moment is when you’re right. That’s when you’re in the most trouble, because you tend to overstay the good decisions. Once you’ve been right for long enough, you don’t even consider reducing your winning positions. They feel so good, you can’t even face that. As incredible as it sounds, that makes you comfortable with not being diversified. So, in many ways, it’s better not to be so right. That’s what diversification is for. It’s an explicit recognition of ignorance."

Edited Tuesday at 02:19 PM by yqsun

[modiva]

16 hours ago, Parsad said:

All depends on temperament, time of life, desired return, etc.  I don't know how old Modiva is, but when I was much younger, I would easily swing for the fences like that, because I didn't have as much money or had time to recover from such risk.

 

But today at 55, comfortable and enjoying life, like you, I don't need to swing for the fences any more and I sleep really well.  Although, I'm pretty sure if I see something just stupidly priced, like Fairfax or Meta was in the last few years, I will take huge positions again.  And just like this time, I will reduce the positions as they rebound and maintain allocations that I'm comfortable with.

 

I just live by my mantra for the last 10 years...never fall in love with any stock or investment.  The goal is the best return you can generate while minimizing permanent loss risk to the portfolio.  The portfolio is what you should love...not the components of the portfolio!  Cheers!

 

@Parsad @Castanza thanks for sharing your perspectives!

 

I needed to add a caveat to my statement. Fairfax Financials and Fairfax India make up 55% of my portfolio (35% and 20% respectively). My goal is to keep it to around 50% for long time, as long as three conditions are met:

1) The investment thesis doesn't change.  Long-term market and company fundamentals, differentiators such as culture, >15% growth

2) Do not exceed any single business sizing to go above 30%, ideally 25%. I view Fairfax Financials and Fairfax India as two different businesses.  

3) Stock doesn't get too expensive or too cheap.  Consider reducing if it gets too expensive and adding if it gets too cheap, as long as the first two points holds good. 

 

What is expensive or cheap can be subjective and varies from one investor to another.  

I am comfortable with the stock price range: 1x (cheap) - 1.5x (expensive) of book value.  

Based on the estimated book value for 2024 end ~USD 1100, I am comfortable with making no changes to my portfolio as long as the stock ranges within $1100-$1600 in the next year; and adjust these numbers and review hypothesis every quarter. 

 

It's not easy to find undervalued businesses that have strong investment hypothesis as above.  All I need is to identify 1 such business in a year but I struggle.  

 

80% of my portfolio is in Fairfax Financials, Fairfax India, Berkshire, and Cash/Gold.  

[villainx]

22 hours ago, Castanza said:

Sorry, typo its....CNSWF (constellation software) 

 

Was it around this price level?  I've been thinking of adding here.  It's not outsize expensive historically.  

[SafetyinNumbers]

19 minutes ago, villainx said:

 

Was it around this price level?  I've been thinking of adding here.  It's not outsize expensive historically.  

I really struggle paying up for quality. I think it’s because I worry about multiple contraction and because to get right tail type returns, I’m relying on multiple expansion. I think I understand why multiples keep expanding and I don’t know how it ends but I still struggle betting on it.

 

How do others think about it?

[dartmonkey]

11 minutes ago, SafetyinNumbers said:

I worry about multiple contraction and because to get right tail type returns, I’m relying on multiple expansion. I think I understand why multiples keep expanding and I don’t know how it ends but I still struggle betting on it.

 

How do others think about it?

Your way.

[MMM20]

6 hours ago, yqsun said:

 

A (Long) Chat with Peter L. Bernstein

 

"Maximizing return is a strategy that makes sense only in very specific circumstances. In general, survival is the only road to riches. Let me say that again: Survival is the only road to riches. You should try to maximize return only if losses would not threaten your survival and if you have a compelling future need for the extra gains you might earn.

 

The riskiest moment is when you’re right. That’s when you’re in the most trouble, because you tend to overstay the good decisions. Once you’ve been right for long enough, you don’t even consider reducing your winning positions. They feel so good, you can’t even face that. As incredible as it sounds, that makes you comfortable with not being diversified. So, in many ways, it’s better not to be so right. That’s what diversification is for. It’s an explicit recognition of ignorance."

 

Similar perspective to https://frank-k-martin.com/2024/11/18/cash-as-trash-or-king/ 

 

Buffett’s “not-so-secret weapon,” as noted in the 2023 annual letter excerpt above, is to sell on good news so you have cash to buy on bad news. Only a tiny fraction of investors have the willpower to walk away from the table when they have a hot hand. 

 

Edited Tuesday at 08:40 PM by MMM20

[Viking]

7 hours ago, yqsun said:

 

A (Long) Chat with Peter L. Bernstein

 

"Maximizing return is a strategy that makes sense only in very specific circumstances. In general, survival is the only road to riches. Let me say that again: Survival is the only road to riches. You should try to maximize return only if losses would not threaten your survival and if you have a compelling future need for the extra gains you might earn.

 

The riskiest moment is when you’re right. That’s when you’re in the most trouble, because you tend to overstay the good decisions. Once you’ve been right for long enough, you don’t even consider reducing your winning positions. They feel so good, you can’t even face that. As incredible as it sounds, that makes you comfortable with not being diversified. So, in many ways, it’s better not to be so right. That’s what diversification is for. It’s an explicit recognition of ignorance."

@yqsun, that was one of the best articles i have read this year. Thank you for posting. So much good stuff to think about… Bernstein is eloquent, opinionated and very rational. And when it comes to investing, wicked smart. 

[Castanza]

3 hours ago, villainx said:

 

Was it around this price level?  I've been thinking of adding here.  It's not outsize expensive historically.  

Yeah, I’ve been buying here and there since about mid August. It’s always kind of expensive but I like the business, the management and the capital allocation. It’s always that balance between price and quality. Some things never seem cheap. 

[Parsad]

9 hours ago, 73 Reds said:

Sanjeev, largely agree but does your "do not fall in love with a stock" philosophy have anything to do with tax deferral on cap. gains?  Personally, 99% + % of stocks are held in taxable accounts.  For folks like me with no interest in investing one could do far worse than simply DCA'ing into an S&P 500 index fund or equivalent and going on with life.  For those of us with an interest, buying great stocks at sensible prices and not selling unless money is needed or unless the investment thesis changes also generates desirable results.  What is a great stock?  IMO, one that sells essential products/services, possesses near monopolistic qualities, superior management and capital allocation, enviable balance sheet, and remains profitable in just about any economic cycle.  There aren't too many such companies which makes investing a lot less time consuming.  Buy them when they are cheap in relation to their own historical valuation ranges.   No need to fall in love with any stocks but if they aren't broken, why fix them?   

 

Yes, non-registered/taxable accounts don't fit the philosophy I espoused.  For example, in my personal holding company, I buy dirt cheap stuff and I pretty much hold for the long-term.  I may take some capital gains if they grow to massive proportions (like FFH and META did), but generally the capital coming in and allocated to other ideas tends to diversify the portfolio a bit and reduce any single stock from becoming too outsized over time. 

 

The other thing I started doing 3 years ago in my holding company was to allocate all new cash for investments to VOO (S&P500 ETF).  Like I said, I don't need homeruns anymore, as nice as they are.  I just need singles and doubles...so the S&P500 ETF is a cheap, no-brainer, where I can average in and get decent results long-term. 

 

Cheers! 

[Parsad]

4 hours ago, modiva said:

 

@Parsad @Castanza thanks for sharing your perspectives!

 

I needed to add a caveat to my statement. Fairfax Financials and Fairfax India make up 55% of my portfolio (35% and 20% respectively). My goal is to keep it to around 50% for long time, as long as three conditions are met:

1) The investment thesis doesn't change.  Long-term market and company fundamentals, differentiators such as culture, >15% growth

2) Do not exceed any single business sizing to go above 30%, ideally 25%. I view Fairfax Financials and Fairfax India as two different businesses.  

3) Stock doesn't get too expensive or too cheap.  Consider reducing if it gets too expensive and adding if it gets too cheap, as long as the first two points holds good. 

 

What is expensive or cheap can be subjective and varies from one investor to another.  

I am comfortable with the stock price range: 1x (cheap) - 1.5x (expensive) of book value.  

Based on the estimated book value for 2024 end ~USD 1100, I am comfortable with making no changes to my portfolio as long as the stock ranges within $1100-$1600 in the next year; and adjust these numbers and review hypothesis every quarter. 

 

It's not easy to find undervalued businesses that have strong investment hypothesis as above.  All I need is to identify 1 such business in a year but I struggle.  

 

80% of my portfolio is in Fairfax Financials, Fairfax India, Berkshire, and Cash/Gold.  

 

The only thing I would be wary about is that outlier events happen, especially in reinsurance.  The investment thesis might not change, but an outlier event causes significant losses in a short period of time...think of an 8.5 earthquake hitting a major city on the West Coast.  Or a biological attack on a major city.  There is reinsurance coverage for losses or exclusions from things like a biological attack, but there may be unforeseen ancillary losses that fall within the scope of insurance contracts that could be devastating. 

 

For example, an 8.5 earthquake hitting Los Angeles...much of the losses would be spread among reinsurance policies...but if the loss is $750B-$1T, you can imagine that there might be 10% of ancillary losses claimed that insurers missed excluding on the original contracts.  That's still a $75B-$100B hit to the industry that they didn't expect.

 

While I'm sure Prem or Buffett are aware of far more outlier events than I could think of, it is the ones that they don't think of that worry me.  Another great example was the use of derivatives by insurers back in 1999-2000 to 2007.  It's why Buffett unwound thousands of derivatives contracts at GenRe when he acquired it...it's what led to AIG's downfall during the financial crisis.  99.99% of the industry and financial analysts had little clue on these financial "weapons of mass destruction!"  That was a period where we also suffered from the stupidity of ARM loans and credit derivatives marked as AAA that were junk.  Few were aware of this risk to the financial industry.

 

So I hold enough of Fairfax or Berkshire where I'm comfortable with outlier events too, but not so much where I might be surprised one morning if one occurred.  Cheers!

 

 

[73 Reds]

15 hours ago, Parsad said:

 

The only thing I would be wary about is that outlier events happen, especially in reinsurance.  The investment thesis might not change, but an outlier event causes significant losses in a short period of time...think of an 8.5 earthquake hitting a major city on the West Coast.  Or a biological attack on a major city.  There is reinsurance coverage for losses or exclusions from things like a biological attack, but there may be unforeseen ancillary losses that fall within the scope of insurance contracts that could be devastating. 

 

For example, an 8.5 earthquake hitting Los Angeles...much of the losses would be spread among reinsurance policies...but if the loss is $750B-$1T, you can imagine that there might be 10% of ancillary losses claimed that insurers missed excluding on the original contracts.  That's still a $75B-$100B hit to the industry that they didn't expect.

 

While I'm sure Prem or Buffett are aware of far more outlier events than I could think of, it is the ones that they don't think of that worry me.  Another great example was the use of derivatives by insurers back in 1999-2000 to 2007.  It's why Buffett unwound thousands of derivatives contracts at GenRe when he acquired it...it's what led to AIG's downfall during the financial crisis.  99.99% of the industry and financial analysts had little clue on these financial "weapons of mass destruction!"  That was a period where we also suffered from the stupidity of ARM loans and credit derivatives marked as AAA that were junk.  Few were aware of this risk to the financial industry.

 

So I hold enough of Fairfax or Berkshire where I'm comfortable with outlier events too, but not so much where I might be surprised one morning if one occurred.  Cheers!

 

 

Can you think of an example of an outlier event that Buffett or Watsa would not have thought of?  If the outlier event is truly "outlier" does it fall within the definition of "insurable"?  Before an insurance company writes an insurance contract, any outlier event, no matter how remote, should be a part of the equation.

[Jaygo]

20 hours ago, SafetyinNumbers said:

I really struggle paying up for quality. I think it’s because I worry about multiple contraction and because to get right tail type returns, I’m relying on multiple expansion. I think I understand why multiples keep expanding and I don’t know how it ends but I still struggle betting on it.

 

How do others think about it?

 

I guess it depends on what "quality" actually is. Love this Question by the way. It really gets my mind going.

 

If I think something will stand the test of time i'm ok with it because I can see a time where Ill get my money back plus a bit more. I would buy KO or Walmart almost regardless of price. That is quality based on durability. Not regulated outsized margins like a lot of the "quality basket tends to be. Trandigm i'm looking at you!!

 

With KO or WMT i'm not expecting homeruns because that ship has sailed but you know 20 years down the road they will still be there.

 

Costco is a no because Costco could be disrupted easier than the other two imo.

 

Financial Quality like fico, spg, moodys, AJG ect i wouldn't because I just dont understand it well enough. 

 

Tech is also a no because I just dont see a future with enough clarity.

 

Resources are a big yes because quality tends to hide amongst shitcos and lately they have been relatively cheap.

 

Retail is my favorite place to play because nobody is really "quality"  but it is so easy to predict you can really get some great opportunities. Nike for example would be on many Quality lists but On a cloud and sketchers are eating their lunch.

 

Paying up for Nike has been dumb, paying up for TJX on the other hand is wildly different.

 

Trends and fads are the worst, single product companies are also bad. If I knew how to short I would make a fcuk ton of money on shorting fads, Yeti anyone? 

 

Long story short paying up for Quality is not my thing, I'm too active looking for reversions and dead cat bounces.

 

[modiva]

On 11/19/2024 at 2:42 PM, Parsad said:

 

The only thing I would be wary about is that outlier events happen, especially in reinsurance.  The investment thesis might not change, but an outlier event causes significant losses in a short period of time...think of an 8.5 earthquake hitting a major city on the West Coast.  Or a biological attack on a major city.  There is reinsurance coverage for losses or exclusions from things like a biological attack, but there may be unforeseen ancillary losses that fall within the scope of insurance contracts that could be devastating. 

 

For example, an 8.5 earthquake hitting Los Angeles...much of the losses would be spread among reinsurance policies...but if the loss is $750B-$1T, you can imagine that there might be 10% of ancillary losses claimed that insurers missed excluding on the original contracts.  That's still a $75B-$100B hit to the industry that they didn't expect.

 

While I'm sure Prem or Buffett are aware of far more outlier events than I could think of, it is the ones that they don't think of that worry me.  Another great example was the use of derivatives by insurers back in 1999-2000 to 2007.  It's why Buffett unwound thousands of derivatives contracts at GenRe when he acquired it...it's what led to AIG's downfall during the financial crisis.  99.99% of the industry and financial analysts had little clue on these financial "weapons of mass destruction!"  That was a period where we also suffered from the stupidity of ARM loans and credit derivatives marked as AAA that were junk.  Few were aware of this risk to the financial industry.

 

So I hold enough of Fairfax or Berkshire where I'm comfortable with outlier events too, but not so much where I might be surprised one morning if one occurred.  Cheers!

 

 

Thanks @Parsad! Greatly appreciate your thoughtful insights and risks to be aware of. 

[Parsad]

14 hours ago, 73 Reds said:

Can you think of an example of an outlier event that Buffett or Watsa would not have thought of?  If the outlier event is truly "outlier" does it fall within the definition of "insurable"?  Before an insurance company writes an insurance contract, any outlier event, no matter how remote, should be a part of the equation.

 

Buffett and Watsa had not thought about Nuclear/Chemical/Biological weapons before 9/11.  It was after 9/11 that the insurance industry started including NCB events as exclusions from reinsurance policies.  If there had been an NCB event rather than planes hitting targets, the losses to the insurance industry would have been so large that the government would have needed to step in and backstop the industry.  Many insurers would have gone bankrupt...certainly FFH and possibly BRK.

 

Another outlier event was the deflationary pressures exemplified by zero interest rates in Japan.  Many insurers went bankrupt in Japan, especially life insurers, because they never imagined they would not be able to hit their target of 4% guaranteed on whole life policies.  Guess what?  The most unimaginable thing in 100 years happened...25 years of zero percent interest rates! 

 

Lastly, even though FFH and BRK were ready for the collapse of the real estate bubble and credit derivatives in 2008/2009, if the U.S. government and Western economies had not stepped in like they did, FFH certainly would have fallen and BRK probably would have as well.  It would have been the last to fall, but it probably would have fallen as Buffett once stated.  Even the CDS investments would have only delayed the inevitable at FFH with a collapse of the insurance and financial sector.  We would have been facing something worse than the Great Depression.  Of course governments stepped in...but if they had not moved as quick as they did or in such large scale, the outcome would not have been as rosy at best.

 

Cheers!

[Viking]

1 hour ago, Parsad said:

 

Buffett and Watsa had not thought about Nuclear/Chemical/Biological weapons before 9/11.  It was after 9/11 that the insurance industry started including NCB events as exclusions from reinsurance policies.  If there had been an NCB event rather than planes hitting targets, the losses to the insurance industry would have been so large that the government would have needed to step in and backstop the industry.  Many insurers would have gone bankrupt...certainly FFH and possibly BRK.

 

Another outlier event was the deflationary pressures exemplified by zero interest rates in Japan.  Many insurers went bankrupt in Japan, especially life insurers, because they never imagined they would not be able to hit their target of 4% guaranteed on whole life policies.  Guess what?  The most unimaginable thing in 100 years happened...25 years of zero percent interest rates! 

 

Lastly, even though FFH and BRK were ready for the collapse of the real estate bubble and credit derivatives in 2008/2009, if the U.S. government and Western economies had not stepped in like they did, FFH certainly would have fallen and BRK probably would have as well.  It would have been the last to fall, but it probably would have fallen as Buffett once stated.  Even the CDS investments would have only delayed the inevitable at FFH with a collapse of the insurance and financial sector.  We would have been facing something worse than the Great Depression.  Of course governments stepped in...but if they had not moved as quick as they did or in such large scale, the outcome would not have been as rosy at best.

 

Cheers!

What i find very interesting is how a person is wired when it comes to things like risk management and portfolio concentration etc largely comes from their life experiences. The people who lived through the great depression (or people who have lost everything) are a great example. The chances of total loss might be small. But if the consequences are going to be severe...

 

My guess is most people think they are being rational when it comes to risk management. More likely, they are unknowingly betting that something really bad doesn’t happen. For most people it won’t. And that will be confirmation for them that they were right. Even though they were actually wrong. They just got lucky.

 

It is such a fascinating topic.  

Edited 15 hours ago by Viking

[Parsad]

27 minutes ago, Viking said:

What i find very interesting is how a person is wired when it comes to things like risk management and portfolio concentration etc largely comes from their life experiences. The people who lived through the great depression (or people who have lost everything) are a great example. The chances of total loss might be small. But if the consequences are going to be severe...

 

My guess is most people think they are being rational when it comes to risk management. More likely, they are unknowingly betting that something really bad doesn’t happen. For most people it won’t. And that will be confirmation for them that they were right. Even though they were actually wrong. They just got lucky.

 

It is such a fascinating topic.  

 

Yes.  Being prepared for outlier events is something that flies against modern portfolio theory or insurance actuarial practices.  Both tend to focus on the remote possibilities being remote and probably won't affect most people most of the time.  Like a massive earthquake in the Cascadian belt that happens only once every 500 years. 

 

But often, they even tend to ignore things that may happen once every 20-30 years because it hasn't happened in a generation or they ignore the accumulation of risk.  The psychology leaves you bewildered, but it is real.  

 

Cheers!

[nwoodman]

Management is everything for these outliers.  As a passive minority investor are we better equiped to handle those risks through diversification than the professionals that are trying to build the 100 year company.  It might be a “warm comfy blanket”, but for my money,  I am backing sharp risk managers and sharp capital allocators and a culture over an index any day.   The more sensible question is your willingness to handle the 50-70% drawdown of the general market, especially in an a “indexing world”.

 

Caveat, Price/Value is everything.

Edited 12 hours ago by nwoodman

[Haryana]

On 11/19/2024 at 7:19 AM, yqsun said:

 

A (Long) Chat with Peter L. Bernstein

 

"Maximizing return is a strategy that makes sense only in very specific circumstances. In general, survival is the only road to riches. Let me say that again: Survival is the only road to riches. You should try to maximize return only if losses would not threaten your survival and if you have a compelling future need for the extra gains you might earn.

 

The riskiest moment is when you’re right. That’s when you’re in the most trouble, because you tend to overstay the good decisions. Once you’ve been right for long enough, you don’t even consider reducing your winning positions. They feel so good, you can’t even face that. As incredible as it sounds, that makes you comfortable with not being diversified. So, in many ways, it’s better not to be so right. That’s what diversification is for. It’s an explicit recognition of ignorance."

This would apply to crypto or individual stocks. In the case of Fairfax, they are already like our risk manager doing a lot of diversification on our behalf while holding 50/70 in bonds. 

Trying to do it again on top of that could be deworsification.  

[MMM20]

6 hours ago, Parsad said:

Buffett and Watsa had not thought about Nuclear/Chemical/Biological weapons before 9/11.  It was after 9/11 that the insurance industry started including NCB events as exclusions from reinsurance policies.  If there had been an NCB event rather than planes hitting targets, the losses to the insurance industry would have been so large that the government would have needed to step in and backstop the industry.  Many insurers would have gone bankrupt...certainly FFH and possibly BRK.

 

Another outlier event was the deflationary pressures exemplified by zero interest rates in Japan.  Many insurers went bankrupt in Japan, especially life insurers, because they never imagined they would not be able to hit their target of 4% guaranteed on whole life policies.  Guess what?  The most unimaginable thing in 100 years happened...25 years of zero percent interest rates! 

 

Lastly, even though FFH and BRK were ready for the collapse of the real estate bubble and credit derivatives in 2008/2009, if the U.S. government and Western economies had not stepped in like they did, FFH certainly would have fallen and BRK probably would have as well.  It would have been the last to fall, but it probably would have fallen as Buffett once stated.  Even the CDS investments would have only delayed the inevitable at FFH with a collapse of the insurance and financial sector.  We would have been facing something worse than the Great Depression.  Of course governments stepped in...but if they had not moved as quick as they did or in such large scale, the outcome would not have been as rosy at best.

 

This is the best argument against extreme concentration in best ideas.

[73 Reds]

7 hours ago, Parsad said:

 

Buffett and Watsa had not thought about Nuclear/Chemical/Biological weapons before 9/11.  It was after 9/11 that the insurance industry started including NCB events as exclusions from reinsurance policies.  If there had been an NCB event rather than planes hitting targets, the losses to the insurance industry would have been so large that the government would have needed to step in and backstop the industry.  Many insurers would have gone bankrupt...certainly FFH and possibly BRK.

 

Another outlier event was the deflationary pressures exemplified by zero interest rates in Japan.  Many insurers went bankrupt in Japan, especially life insurers, because they never imagined they would not be able to hit their target of 4% guaranteed on whole life policies.  Guess what?  The most unimaginable thing in 100 years happened...25 years of zero percent interest rates! 

 

Lastly, even though FFH and BRK were ready for the collapse of the real estate bubble and credit derivatives in 2008/2009, if the U.S. government and Western economies had not stepped in like they did, FFH certainly would have fallen and BRK probably would have as well.  It would have been the last to fall, but it probably would have fallen as Buffett once stated.  Even the CDS investments would have only delayed the inevitable at FFH with a collapse of the insurance and financial sector.  We would have been facing something worse than the Great Depression.  Of course governments stepped in...but if they had not moved as quick as they did or in such large scale, the outcome would not have been as rosy at best.

 

Cheers!

I think we need to distinguish between an outlier insurable event and a catastroophic event outside of insurance that affects the value of the company as a whole.  Certainly nuclear war will affect the values of everything and your investment portfolio might be the least of your concerns.  I have to assume that insurance contracts today specifically define "insurable event" and also define "exclusions" so as to eliminate liability to insure any outlier event that is not foreseeable.  

Edited 9 hours ago by 73 Reds
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