Input for a Fairfax Beginner

[racemize]

Hi All, having just discovered this board, I also just discovered fairfax.  I've been reading through various ones of the annual reports and current thinking (e.g., devaluation similar to Japan).  A couple of questions:

 

It appears that Fairfax tends to make more macro calls and/or perform more complicated investments than Berkshire, but the record speaks for itself.  I find myself somewhat hesitant on the current hedging/devaluation thesis, which makes me correspondingly hesitant about buying into Fairfax currently.  Are most of the current investors on board with the thesis, or just trust the management enough to go along with it?  How do you reconcile the hedging with Buffett's comments re inflation and current buying opportunities?

 

Ignoring the above, how is Fairfax's value currently?  I think I read that it sometimes sells under book value, and I believe it is over book value by a bit now, correct?  Any thoughts on a good/realistic entry point would be appreciated.

 

Finally, I'm in the US, and my brokerage doesn't appear to make buying stocks on the TO exchange very easy.  It appears that I can buy the FRFHF (which I think are pink sheets), but any guidance on that would be appreciated as I've never done anything outside of stocks/ADR actively trading on US exchanges.

[Liberty]

One thing to consider is that Fairfax's macro bets have traditionally been very asymmetric, so that if they are wrong, they haven't lost that much.

 

When you evaluate Fairfax's investments, make sure to keep the proper perspective on those bets. They aren't betting the farm...

[racemize]

One thing to consider is that Fairfax's macro bets have traditionally been very asymmetric, so that if they are wrong, they haven't lost that much.

 

When you evaluate Fairfax's investments, make sure to keep the proper perspective on those bets. They aren't betting the farm...

 

I noticed that in many of the past bets and that seems to be true on their current deflation derivatives.  However, I thought that they are currently hedging all of their long term equities, such that they do not get significant gains in an upward market?  I still need to go back and re-read, so perhaps I am mistaken.

[Liberty]

I noticed that in many of the past bets and that seems to be true on their current deflation derivatives.  However, I thought that they are currently hedging all of their long term equities, such that they do not get significant gains in an upward market?  I still need to go back and re-read, so perhaps I am mistaken.

 

You are indeed right. I was talking about their CPI derivatives, but they also have (had?) market hedges.

 

Because of insurance float, FFH is inherently leveraged, and they have more equity exposure than most other insurers, so they have to be careful about the kind of volatility we've been experiencing lately. I think they make more sense when looked at this way -- as a defence mechanism rather than as a pure macro bet.

[Vizi1]

 

I noticed that in many of the past bets and that seems to be true on their current deflation derivatives.  However, I thought that they are currently hedging all of their long term equities, such that they do not get significant gains in an upward market?  I still need to go back and re-read, so perhaps I am mistaken.

 

 

I think the hedges are telling us that FFH doesn't expect an upward market and is in fact protecting against a downward market.

[racemize]

Thanks everyone--I'm somewhat anxious regarding the pink sheet question I had above--do I run any particular risks on the stock if I buy under FRFHF?

 

Thanks!

[rmitz]

Thanks everyone--I'm somewhat anxious regarding the pink sheet question I had above--do I run any particular risks on the stock if I buy under FRFHF?

 

Thanks!

 

The only thing I can think of is overpaying due to the spread.  Be careful with your limit order and you should be fine.

[racemize]

Thanks everyone--I'm somewhat anxious regarding the pink sheet question I had above--do I run any particular risks on the stock if I buy under FRFHF?

 

Thanks!

 

The only thing I can think of is overpaying due to the spread.  Be careful with your limit order and you should be fine.

 

do I have any risks re selling later, e.g., if I hold for a long time?  For example, could I resell back in the TO exchange if the pink sheets weren't around anymore?  I really don't know what these are, other than they are OTC.

[Uccmal]

Hi racemize, Have you read through the entire message board here.  FFH is a complicated entity and the people here are the real experts, outside of management itself.  There is a base of knowledge here that is second to nowhere else.  Once your done reading every post try Googlng Berkshire Hathaway Shareholders message board for the old board's archives.

 

Try Berkshire Hathaway Shareholders - FFH. 

 

FFH is positioned for an upward bound economy.  The equity hedges are to protect the insurance float, as are the deflation hedges, in addition to a bit of a macro bet. 

 

Aside from the highly publicized equity hedges they hold alot of stocks and a few small businesses now. 

 

The biggest US holdings are listed in the 13fs that members generally link.  They also hold alot of Canadian stocks that we only learn about when they exceed insider requirements, and stocks all over the world.  Then there are rapidly growing businesses such as Kennedy Wilson, and consolidators such as ABH. 

 

I wouldn't likely buy any at this price but then at the moment FFh makes up about 40% of my

holdings.  There is nothing else I would ever allow to be at 40%.  So maybe if my position was smaller I would buy some.  Not a deep value play but also not likely to go down due to the hedges.

 

I wouldn't get hung on on the high profile bets.  That is not likely where the bulk of their future cash will come from. 

 

Surely you guys in the states can find brokers that do international stocks.  My broker does 8 countries in addition to Canada and the US.  I have always been able to buy US stocks on a discount basis, online, for 15 years.

[Uccmal]

I wanted to add that the reason Berkshire doesn't hedge is likely because Buffett has reams of cash coming in from the wholly owned businesses that will more than offset even the worst insurance losses.  Ffh doesn't yet have this same luxury.

[racemize]

Thanks for the response Uccmal--I certainly haven't made it through all the messages, but I've been reading them voraciously, as well as the shareholder letters.  I think I understand what's going on generally pretty well, but haven't gotten quite comfortable with everything yet.  That being said, it looks like a good candidate for my portfolio (along side my recent BRK addition at the August lows), either now or at least at some point in the future.

 

Re buying on the TO exchange, I've been using Fidelity, but they have some weird net worth restrictions on my trades--I think I'll contact them about it.  I'm a little hesitant about the pink slips as I don't understand them very well.

[eclecticvalue]

The pink sheet is still an ordinary share, but they have subordinated voting rights and also converted to U.S. Dollars. Actually pays a dividend but I am guessing its annually.

[rmitz]

Thanks everyone--I'm somewhat anxious regarding the pink sheet question I had above--do I run any particular risks on the stock if I buy under FRFHF?

 

Thanks!

 

The only thing I can think of is overpaying due to the spread.  Be careful with your limit order and you should be fine.

 

do I have any risks re selling later, e.g., if I hold for a long time?  For example, could I resell back in the TO exchange if the pink sheets weren't around anymore?  I really don't know what these are, other than they are OTC.

 

Not a bad question.  A full-service broker would certainly be able to handle the conversion of the holding so that you would be able to sell it on the Toronto (or whatever) exchange.  Many discount brokers probably can't, but you can easily handle the situation later by transferring your account at that time to someone capable of dealing with the details. 

[mals]

FRFHF and OTC risk

---

 

I read a comment in this thread on how FRFHF can be redeemed for a share by a full service broker in the event there is a problem.

I purchased FRFHF because it is simpler, I can do it online and because TD Ameritrade makes international trades much more expensive.

 

Have others also considered the risk?

And if there is even some risk, what may be a good broker that offers easy international trading and competitive per trade prices.

[racemize]

FRFHF and OTC risk

---

 

I read a comment in this thread on how FRFHF can be redeemed for a share by a full service broker in the event there is a problem.

I purchased FRFHF because it is simpler, I can do it online and because TD Ameritrade makes international trades much more expensive.

 

Have others also considered the risk?

And if there is even some risk, what may be a good broker that offers easy international trading and competitive per trade prices.

 

So I talked to my Fidelity broker about this.  Apparently, they don't do the trade OTC, so whenever I trade "FRFHF" they actually get a Canadian broker to make the trade for me rather than going through pink sheets.  Doesn't make much sense to me, but that's what they do.  Perhaps that it is also the case with Ameritrade/others?

[mals]

@racemize - I will ask TDAmeritrade. Will update here as to what I hear.

[oddballstocks]

FRFHF and OTC risk

---

 

I read a comment in this thread on how FRFHF can be redeemed for a share by a full service broker in the event there is a problem.

I purchased FRFHF because it is simpler, I can do it online and because TD Ameritrade makes international trades much more expensive.

 

Have others also considered the risk?

And if there is even some risk, what may be a good broker that offers easy international trading and competitive per trade prices.

 

So I talked to my Fidelity broker about this.  Apparently, they don't do the trade OTC, so whenever I trade "FRFHF" they actually get a Canadian broker to make the trade for me rather than going through pink sheets.  Doesn't make much sense to me, but that's what they do.  Perhaps that it is also the case with Ameritrade/others?

 

I use Fidelity and you can trade directly in Canada in loonie with them if you want.  You have to call and ask for the International Trading but they allow it.  They also have something like 10 or 12 other countries you can invest in.  In the case you find something they don't let you trade directly online you can still buy it over the phone.  I purchased a Swiss stock in my IRA this way, it's a bit pricier ($80) which is more in line with a full service broker, but it's still possible.  So if you decide to use the full service route at Fidelity you can literally buy any stock in the world no matter where it's traded.

 

Call and ask for the International Trading, ignore the net worth stuff on the website, I don't meet it and was able to get enrolled right away. 

[rtgross]

 

My personal opinion is that Interactive Brokers is one of the best and lowest cost brokerage firms for international trading.

 

That said, you will want to have sufficient size to make it worth your time.  There is a $10 min monthly fee ($120 annualized) plus additional fees for data streams if you need it.  The primary attraction for me is the relatively low cost international trading and distressed bond access.

[mals]

 

My personal opinion is that Interactive Brokers is one of the best and lowest cost brokerage firms for international trading.

 

That said, you will want to have sufficient size to make it worth your time.  There is a $10 min monthly fee ($120 annualized) plus additional fees for data streams if you need it.  The primary attraction for me is the relatively low cost international trading and distressed bond access.

 

It is for this reason that I evaluated Interactive Brokers as recently as last week. However their highly trader oriented interface put me off. And I was under the impression that their monthly fee is $30 if your trading volume is light - which mine will be. $10 changes the picture.

 

Sticking to TDAmeritrade for now. I will try to negotiate international trades with them - can you share how much it costs to do international trades at IB? Thanks!

[rtgross]

 

My personal opinion is that Interactive Brokers is one of the best and lowest cost brokerage firms for international trading.

 

That said, you will want to have sufficient size to make it worth your time.  There is a $10 min monthly fee ($120 annualized) plus additional fees for data streams if you need it.  The primary attraction for me is the relatively low cost international trading and distressed bond access.

 

It is for this reason that I evaluated Interactive Brokers as recently as last week. However their highly trader oriented interface put me off. And I was under the impression that their monthly fee is $30 if your trading volume is light - which mine will be. $10 changes the picture.

 

Sticking to TDAmeritrade for now. I will try to negotiate international trades with them - can you share how much it costs to do international trades at IB? Thanks!

 

The min is $10/month which is offset against any commissions that are charged during the month.  You need to have $30/month commissions to receive the non-professional data service bundle for free.  I am guessing that this is what led to the confusion.

 

IB 's business model is to run on a cost-plus basis.  Thus, their intent is to basically charge you the actual cost of the trade plus a spread to over their own costs.  As a result, commission are different in every market because regulations are different in every market.  That said, in my experience the average cost for my trades run 1/10 Schwab, Etrade, Ameritrade.  The primary markets that I access are the US, Canada, and Japan.

 

http://individuals.interactivebrokers.com/en/p.php?f=commission

 

 

[mals]

@rtgross - thanks for sharing the insights on IB. will evaluate again.

[oddballstocks]

I looked at IB for their international platform as well and was put off by the monthly fee.  I don't trade enough to offset it each month and it would be slowly digging away at my account.  I realize it's not much but it's enough.

 

I think where IB is great is if the portfolio size is large enough at that point the costs maybe don't matter as much.  I can imagine someone with seven figures not caring about paying $360 a year for data.  This is especially true for some RIA's and partnerships, a few hundred or even thousand a year is nothing for them.  The little guy on the other hand...well I'd rather keep the $360 personally.