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Book value would be up about $10 from year-end based on the appreciation of investment gains.  So even though during the quarter, mark to market losses were significant, they pretty much more than offset them into April.  Cheers!

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Well you need to appreciate the MTM.  For instance, FFH traded @ 220 this quarter.  At that point in the quarter its MTM BV was probable near $235 due to the equity markets.  However, if you turned a blind eye to the MTM accounting, you would think that the BV was still $278, and the company was selling at a substantial discount to BV. 

 

To quote Buffett, "Price is what you pay, value is what you get."  While the value of the portfolio has not declined, the prices have.  Therefore, as an investor comparing various market opportunities, I would want to know what FFH is currently trading at compared to where its portfolio is currently priced at, because, theoretically, I can recreate the same portfolio if I want (given the SEC filings).  So if the company is trading at 0.5x MTM BV, I have no incentive to do so, but if the company is trading at 3X MTM BV, then I might as well sell FFH and just buy the underlying holdings equity directly. 

 

While I do agree that the MTM losses aren't a change in true value and therefore just noise for a long term investor, I don't think it is meaningless information to have.

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Therefore, as an investor comparing various market opportunities, I would want to know what FFH is currently trading at compared to where its portfolio is currently priced at, because, theoretically, I can recreate the same portfolio if I want (given the SEC filings).  So if the company is trading at 0.5x MTM BV, I have no incentive to do so, but if the company is trading at 3X MTM BV, then I might as well sell FFH and just buy the underlying holdings equity directly.

 

Correct, but you would not be able to replicate the insurance businesses or the 5-1 leverage.  Cheers!

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How do others feel about the post March 31st detail?

 

Personally, I think Prem and Co. need to take the high road as they have always done in the past.  All true shareholders know approx. what the FFH investment portfolio is and can guesstimate what has happened since March 31.  They didn't comment on their post March 31 underwriting, losses, hardened market conditions, etc. which is the actual business that they are in.  So why comment about the investment gains?  Yes, I know everybody wants to know the daily value of their portfolio, what they own, how many shares, what is their average cost and they have set up their own spreadsheets and portfolio tracking webpages with all the details that are disclosed on the SEC website.  Who wouldn't prefer daily disclosure of all FFH trades?  (You want to say 'no' but I'm not sure that is completely true).

Would they have done the same if they had lost $250M, $500M, etc. since the quarter end?  Maybe, maybe not?  Why start commenting on post-quarter end results that aren't actual results until the end of June ?  This was the Q1 report, right?  It wasn't the Q1 and YTD numbers.  I can see if they publicly announced an acquisition and released additional details regarding the acquisition or another extraordinary publicly announced event.  The market moving 10 or 20% in either direction is no longer extraordinary.  I can also see it if they realized extraordinary gains but all these gains post March 31 are presumably unrealized, so why report it?  Yes, the MTM accounting changes things but why report specifics?  They could have easily kept it 'general' and pointed how equity values change rapidly, just as they do for CDS values.

 

Yes, I am long.

 

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I think they tend to talk about the post-quarter investment moves when they are material.  I think *not* disclosing $900m in change would be inappropriate.

 

We all *assumed* this was the case because we know their port composition... but it should be explicitly stated when it is >5% of book IMO.

 

I agree with the idea that we should take the high road and let the results speak for themselves (and I always have) BUT, I think material changes are to be disclosed.

 

My 2 cents.

 

Ben

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FFH Watcher, my guess is if they did not communicate the $900 million increase in market value Mr. Market would have punished the stocks of FFH and ORH (still might... we will find out tomorrow).

 

If FFH and ORH do sell off (to below .8 x BV) I think they will begin to purchase shares quite aggressively. If they had not communicated the $900 million and in Q2 purchased significant shares on weakness knowing what they know they may have gotten grief. You said that people can estimate the gains but I think it is quite difficult given the incredible changes in portfolios the past 6 months. Everyone is on the same page right now and able to make intelligent decisions. I am thankful they communicated this information (and also get your point that it is not usual to do this).

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Mark to market....bla bla bla...

 

Can we agree that, as long term investors, we do not care about mark to market too much, but rather focus on intrinsic value gains and losses?

 

Abitibi have so far been an overall intrinsic value mess (IMO). Not even a cigar butt. It might be a rude comment, but I've always tried to be as fair as possible in my comments.

 

While munis bonds like the ones who are garanteed by BRK are high quality ones, who have been bought on the cheap, it's fair to be hopeful that it's a great investment decision? Price is what you pay. Value is what you get.

There is pros and cons in this quarter, and we need to be sober about them.

 

Cheers!

 

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Buying shit businesses at low p/es when deflationary forces are present did not work in the depression and it won't work now.  You want high quality, and you shouldn't mind paying up a bit for high quality - if ever there was a time for a penchant towards quality, this is it.  I think they just learned that lesson and on top of that, Grantham came out with a good write up about just that in the last couple of months.  So the learned a lesson and then someone they follow just said the same thing.

 

High quality: E.g. JNJ selling at 10x earnings and 4% dividend yield.  Buy that instead of something at 7 times earnings with debt and business revenue falling off a cliff.  If you buy 5 like JNJ, none will go bankrupt and you may earn a fairly certain 10% return on each.  I am going for certain returns here not high returns, I think that is the way to play right now.  Another reason I like ORH and the big muni position - its certain. 

 

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The old disclosure argument.  Those of us who were around during the lean 7 aren't complaining.  FFH came under incredible pressure from shareholders to give more than a once per year look at their black box.  The shorts had endless fodder to play with.  Pre-2003 they didn't even do quarterly conference calls.  Prem has just learned to play the game the best way possible to protect the shareholders.  I think it is a resounding positive to get periodic updates particularly where they are material in nature.  

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Mungerville,

 

I think that a lot of value investors in 2008 learned the hard way that your margin of safety doesn't rely only on the price to ACTUAL intrinsic value. A solid ark and a full of hole's boat are two very different beasts to consider. Congragulations if you paid 30 cents on the dollar, but if your dollar is truly worth  20 cents now, what the heck? You should wish to have time on your side.

 

In Drummondville, Quebec, where I live, 100 years ago, some people used to take ice on the St-François River in the end of winter and sell it all summer long. I've seen an old picture of an ice merchant not too long ago.

 

But then came freezers...

 

 

 

 

 

 

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The fact is MTM accounting is creating material BV volatilty, & with the rules 'relaxation' in the US - there are going to be some unexpected effects. Better to know, than to guess.

 

FFH typically trades at a BV multiple ... but its the market value BV, not the accounting BV.

Not a big deal if you buy & hold forever - but it is an issue if you're hedging seasonal volatility.

 

Given what is occurring in the markets, its hard to fault the additional disclosure.

 

SD

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One of the biggest issues that Fairfax faced during the tough years was to stick to their guns on disclosure, or let the media and hedge funds run amok and create panic around the business.  Prem's comments are simply part of their attempt to provide enough information, so that shareholders have the correct information around material events. 

 

With mark-to-market accounting, significant changes in equity are occurring quarter to quarter with the amount of volatility the markets are experiencing.  Thus, they need to provide enough information so that investors are informed, but not so much where they start to create earnings guidance. 

 

It's a very tough balancing act, and they are damned if they do and damned if they don't.  The earnings conference calls were something they never did as well, but if that's what they have to do to make sure the correct information is transmitted to shareholders, then that is what they have to do.  It's kind of silly for investors to even discuss this issue if they saw what happened in 2003.  Any extra information provided regarding the 2nd quarter is disclosed publically, and it won't change what happens one way or another.  Cheers!

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How do others feel about the post March 31st detail?

 

Personally, I think Prem and Co. need to take the high road as they have always done in the past.  All true shareholders know approx. what the FFH investment portfolio is and can guesstimate what has happened since March 31.  They didn't comment on their post March 31 underwriting, losses, hardened market conditions, etc. which is the actual business that they are in.  So why comment about the investment gains?  Yes, I know everybody wants to know the daily value of their portfolio, what they own, how many shares, what is their average cost and they have set up their own spreadsheets and portfolio tracking webpages with all the details that are disclosed on the SEC website.  Who wouldn't prefer daily disclosure of all FFH trades?  (You want to say 'no' but I'm not sure that is completely true).

Would they have done the same if they had lost $250M, $500M, etc. since the quarter end?  Maybe, maybe not?  Why start commenting on post-quarter end results that aren't actual results until the end of June ?  This was the Q1 report, right?  It wasn't the Q1 and YTD numbers.  I can see if they publicly announced an acquisition and released additional details regarding the acquisition or another extraordinary publicly announced event.  The market moving 10 or 20% in either direction is no longer extraordinary.  I can also see it if they realized extraordinary gains but all these gains post March 31 are presumably unrealized, so why report it?  Yes, the MTM accounting changes things but why report specifics?  They could have easily kept it 'general' and pointed how equity values change rapidly, just as they do for CDS values.

 

Yes, I am long.

 

 

 

The short answer is yes, if the portfolio was down instead of up they would have disclosed it. They did, IIRC, disclose CDS losses after quarters end. It took some of the bloom off the reported quarterly gains but they wanted people to understand the volitilaty of the CDS. Prem et al just have that much integrity....

 

cheers

Zorro

 

 

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In my view, there is no problem, and maybe some potential risk-avoidance benefit.

 

If disclosure is done in an everyone-hears-at-once, while-markets-closed way, then it is fair.

Mid-quarter is fine if management (subject to board approval of process in principle) want to

disclose something.  Especially if material, since there is ongoing share buyback potential.

If management is using some set of numbers for managing business, and it does not harm

the business by revealing too much to competitors or disclosing investment intentions too

early, then it is much appreciated that they share with us less connected co-owners.

If numbers are being calculated and used by management anyway, that is.  If it is just an

entertainment for shareholders, then would prefer that the money/time be better used.

 

The risk avoidance potential benefit is denying opponents, eg lawsuit defendants, any

possible lever to fault the company for insufficient disclose of material information.  We

previously saw a spurious attempt relating to a hard-to-understand tax transaction.

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I don't think I intended my initial comments to be a complaint about disclosure.  I was questioning the purpose of the (positive) disclosure and the detail.  Personally, I think ORH did a better job of disclosing the change since the end of the quarter.  I think both FFH and ORH could have gotten away with, "As you know, the markets have improved significantly since the end of the quarter and as such, many of our reported MTM losses are no longer losses, HOWEVER markets change quickly and those MTM losses could be higher or lower before this next quarter closes."  That would have been sufficient, in my opinion.  With their current disclosure, it is now 'expected' that they need to make a press release everytime their equity portfolio moves by 10%. 

 

I remember when financial advisors would do a quarterly portfolio review with clients a few weeks after the end of the quarter.  If the quarter was bad but had improved in the last weeks, you would certainly bring that to the clients attention to add a positive 'spin' to the report.  If things had deteriorated further since the end of the quarter, the 'desire' to share that information with the client wasn't so forthcoming.  As long as the additional disclosure is balanced, than fine.  If anyone can do it, it is Prem/FFH.

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This disclosure is not that exceptional. With the CDS, they usually disclosed what happened subsequent to quarter end at the time of the results announcements. I believe the disclosure is because of the materiality and volatility of the numbers.

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