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A report to fellow shareholders


JackW0
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I am a long time Fairfax shareholder with more then 60% of my family capital located in FFH. Living around Toronto I feel it is my responsibility to participate in AGM and report to all who could not attend.

This was my 12th FFH AGM and I can tell you I never felt better. I believe our capital is as safe as it can be (we all understand the risk) and we are ready to explode in due time.

I am not a gifted writer so it is difficult for me to write about all the events on wednesday and thursday, specially that they are growing fast and not always to my likening. I can tell you there is nothing like meeting our old friends, making some new, listening to answers to questions and concerns of other shareholders or shaking hands when looking them into their eyes with members of the Fairfax team.

You have to do it yourself one day, mean time I can tell you, Fairfax is OK, and I would argue much better than that.

 

Cheers, Jack Wisniewski

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I am a long time Fairfax shareholder with more then 60% of my family capital located in FFH. Living around Toronto I feel it is my responsibility to participate in AGM and report to all who could not attend.

This was my 12th FFH AGM and I can tell you I never felt better. I believe our capital is as save as it can be (we all understand the risk) and we are ready to explode in due time.

I am not a gifted writer so it is difficult for me to write about all the events on wednesday and thursday, specially that they are growing fast and not always to my likening. I can tell you there is nothing like meeting our old friends, making some new, listening to answers to questions and concerns of other shareholders or shaking hands when looking them into their eyes with members of the Fairfax team.

You have to do it yourself one day, mean time I can tell you, Fairfax is OK, and I would argue much bettrer than that.

 

Cheers, Jack Wisniewski

 

Thank you, Jack, for your note.  :)

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It's nice to hear that things are going well.  I've been buying (and still buying) FFH. 

 

I feel like with the markets this high the hedges can't be that much of a drag anymore.  I'm buying the stock today for the same price I sold it for 2 years ago! 

 

The deflation hedges are already practically worthless.

 

So it's like, everything about the company that has been killing returns for two years is now probably substantially in the past. 

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It's nice to hear that things are going well.  I've been buying (and still buying) FFH. 

 

I feel like with the markets this high the hedges can't be that much of a drag anymore.  I'm buying the stock today for the same price I sold it for 2 years ago! 

 

The deflation hedges are already practically worthless.

 

So it's like, everything about the company that has been killing returns for two years is now probably substantially in the past.

 

What % of your portfolio are you targeting?

 

Hope that your midas touch continues for the rest of us patient FFH holders

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I think I might dig a little into FFH.  Their bond duration seems to be pretty long, which makes their hedges feel more like positions rather than hedges.  Eric might be right that these might not take too much more of a MTM loss though.

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It's nice to hear that things are going well.  I've been buying (and still buying) FFH. 

 

I feel like with the markets this high the hedges can't be that much of a drag anymore.  I'm buying the stock today for the same price I sold it for 2 years ago! 

 

The deflation hedges are already practically worthless.

 

So it's like, everything about the company that has been killing returns for two years is now probably substantially in the past.

 

What % of your portfolio are you targeting?

 

Hope that your midas touch continues for the rest of us patient FFH holders

 

It's roughly 50% of net worth.  This is partly motivated by the fact that California makes it cost prohibitive to dance in and out of holdings.  So I hope I just hold this for a long time in my taxable account.  I still have a lot of BAC, but not as much and it's all hedged.

 

So this kind of leverage I find interesting -- things turn out well, I'll keep making money from BAC and FFH at the same time.  Things turn out poorly, FFH will be booking big gains and hopefully BAC will still make money.  If not, hopefully the big FFH gains cancel out the cost of the BAC hedges.

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Eric,

 

Are you not concerned about their equity holding ?

They are very heavily into RIMM, and this one still doesn't look like a sure turn-around to me...

 

/plato1976

 

It's nice to hear that things are going well.  I've been buying (and still buying) FFH. 

 

I feel like with the markets this high the hedges can't be that much of a drag anymore.  I'm buying the stock today for the same price I sold it for 2 years ago! 

 

The deflation hedges are already practically worthless.

 

So it's like, everything about the company that has been killing returns for two years is now probably substantially in the past.

 

What % of your portfolio are you targeting?

 

Hope that your midas touch continues for the rest of us patient FFH holders

 

It's roughly 50% of net worth.  This is partly motivated by the fact that California makes it cost prohibitive to dance in and out of holdings.  So I hope I just hold this for a long time in my taxable account.  I still have a lot of BAC, but not as much and it's all hedged.

 

So this kind of leverage I find interesting -- things turn out well, I'll keep making money from BAC and FFH at the same time.  Things turn out poorly, FFH will be booking big gains and hopefully BAC will still make money.  If not, hopefully the big FFH gains cancel out the cost of the BAC hedges.

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Eric,

 

Are you not concerned about their equity holding ?

They are very heavily into RIMM, and this one still doesn't look like a sure turn-around to me...

 

/plato1976

 

 

This is from the annual report (pg. 97).

 

The exposure to the largest single issuer of common stock held at Dec 31, 2012 was $604.7 (million), which represented 2.3% of the total investment portfolio.

 

Hardly something to lose sleep over and thus I wouldn't consider them "heavily into RIMM".  I would add that it's not like BBRY is in rough shape at all.  They have nearly $3 billion in cash and no debt.  They have higher gross margins that AAPL.  The smartphone market is still in it's infancy.  BBRY just released new products.  Prem presents his rationale quite clearly in the annual report. 

 

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Eric,

 

Are you not concerned about their equity holding ?

They are very heavily into RIMM, and this one still doesn't look like a sure turn-around to me...

 

/plato1976

 

 

This is from the annual report (pg. 97).

 

The exposure to the largest single issuer of common stock held at Dec 31, 2012 was $604.7 (million), which represented 2.3% of the total investment portfolio.

 

Hardly something to lose sleep over and thus I wouldn't consider them "heavily into RIMM".  I would add that it's not like BBRY is in rough shape at all.  They have nearly $3 billion in cash and no debt.  They have higher gross margins that AAPL.  The smartphone market is still in it's infancy.  BBRY just released new products.  Prem presents his rationale quite clearly in the annual report. 

 

 

Thanks for looking it up.  I prefer to view it as a percentage of book value, but even then it's not that bad.  For one thing it will take a while before it goes to zero (if it does), and over that time they get income from bonds to fill in the hole.  Plus, any 100% loss isn't really a 100% economic loss due to the tax deduction.

 

Last, if RIMM goes to zero it will be their mistake and not mine  ;D  That's why people pay others to make their mistakes for them.

 

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Plus I like the break from responsibility.  I can behave like a child and do some backseat driving, like pointing out that they don't invest in Berkshire when it's cheap.  But then somebody pointed out that there may be a conflict of interest in their making an investment in a competitor.  So I learned something too.

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It's nice to hear that things are going well.  I've been buying (and still buying) FFH. 

 

I feel like with the markets this high the hedges can't be that much of a drag anymore.  I'm buying the stock today for the same price I sold it for 2 years ago! 

 

The deflation hedges are already practically worthless.

 

So it's like, everything about the company that has been killing returns for two years is now probably substantially in the past.

 

What % of your portfolio are you targeting?

 

Hope that your midas touch continues for the rest of us patient FFH holders

 

It's roughly 50% of net worth.  This is partly motivated by the fact that California makes it cost prohibitive to dance in and out of holdings.  So I hope I just hold this for a long time in my taxable account.  I still have a lot of BAC, but not as much and it's all hedged.

 

 

Whoa man! I can be a bit dense here but are you saying that if BAC went to $0 that your networth wouldn't change (beyond the costs of the hedges)? I'm just a bit shocked is all.  :P

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It's nice to hear that things are going well.  I've been buying (and still buying) FFH. 

 

I feel like with the markets this high the hedges can't be that much of a drag anymore.  I'm buying the stock today for the same price I sold it for 2 years ago! 

 

The deflation hedges are already practically worthless.

 

So it's like, everything about the company that has been killing returns for two years is now probably substantially in the past.

 

What % of your portfolio are you targeting?

 

Hope that your midas touch continues for the rest of us patient FFH holders

 

It's roughly 50% of net worth.  This is partly motivated by the fact that California makes it cost prohibitive to dance in and out of holdings.  So I hope I just hold this for a long time in my taxable account.  I still have a lot of BAC, but not as much and it's all hedged.

 

 

Whoa man! I can be a bit dense here but are you saying that if BAC went to $0 that your networth wouldn't change (beyond the costs of the hedges)? I'm just a bit shocked is all.  :P

 

It would be a bit worse than that because 40% of my BAC is hedged at $12 strike and the rest is hedged at $10.

 

I was really only talking about the portion that is paired up with the FFH in the taxable account, and that's the part that is hedged at $12 strike. 

 

See, in the taxable account FFH only needs to beat the after-tax cost of leverage.  The FFH will continue to defer capital gains for hopefully decades, and the BAC puts will hopefully expire worthless.  This gives me valuable tax losses given the insane capital gains tax rates for Californians.

 

And besides, I expect FFH will likely beat the after-tax cost of leverage that I'm incurring with BAC -- roughly a 5% hurdle rate for 2013 given the short-term cap gains I took on those BAC warrants and the roughly 50% tax rate.

 

However if the markets go to hell in a handbasket both FFH and BAC could be down for a while.  Just like FFH dropped in 2008 and 2009.  But I reason the situation will be good for the rate of value growth in FFH if I sit tight, and certainly it will be good for rolling the BAC puts along.

 

 

 

 

 

 

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Yes, exactly, I think we should think the percentage of equity value

RIMM position is not small  in this sense

Anyway, I still think FFH is a good investment - it's just I cannot convince myself to put > 10% on it

 

Eric,

 

Are you not concerned about their equity holding ?

They are very heavily into RIMM, and this one still doesn't look like a sure turn-around to me...

 

/plato1976

 

 

This is from the annual report (pg. 97).

 

The exposure to the largest single issuer of common stock held at Dec 31, 2012 was $604.7 (million), which represented 2.3% of the total investment portfolio.

 

Hardly something to lose sleep over and thus I wouldn't consider them "heavily into RIMM".  I would add that it's not like BBRY is in rough shape at all.  They have nearly $3 billion in cash and no debt.  They have higher gross margins that AAPL.  The smartphone market is still in it's infancy.  BBRY just released new products.  Prem presents his rationale quite clearly in the annual report. 

 

 

Thanks for looking it up.  I prefer to view it as a percentage of book value, but even then it's not that bad.  For one thing it will take a while before it goes to zero (if it does), and over that time they get income from bonds to fill in the hole.  Plus, any 100% loss isn't really a 100% economic loss due to the tax deduction.

 

Last, if RIMM goes to zero it will be their mistake and not mine  ;D  That's why people pay others to make their mistakes for them.

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It's nice to hear that things are going well.  I've been buying (and still buying) FFH. 

 

I feel like with the markets this high the hedges can't be that much of a drag anymore.  I'm buying the stock today for the same price I sold it for 2 years ago! 

 

The deflation hedges are already practically worthless.

 

So it's like, everything about the company that has been killing returns for two years is now probably substantially in the past.

 

What % of your portfolio are you targeting?

 

Hope that your midas touch continues for the rest of us patient FFH holders

 

It's roughly 50% of net worth.  This is partly motivated by the fact that California makes it cost prohibitive to dance in and out of holdings.  So I hope I just hold this for a long time in my taxable account.  I still have a lot of BAC, but not as much and it's all hedged.

 

So this kind of leverage I find interesting -- things turn out well, I'll keep making money from BAC and FFH at the same time.  Things turn out poorly, FFH will be booking big gains and hopefully BAC will still make money.  If not, hopefully the big FFH gains cancel out the cost of the BAC hedges.

 

now we know whats moving the prices of bac and ffh in recent days

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I am a long time Fairfax shareholder with more then 60% of my family capital located in FFH. Living around Toronto I feel it is my responsibility to participate in AGM and report to all who could not attend.

This was my 12th FFH AGM and I can tell you I never felt better. I believe our capital is as save as it can be (we all understand the risk) and we are ready to explode in due time.

I am not a gifted writer so it is difficult for me to write about all the events on wednesday and thursday, specially that they are growing fast and not always to my likening. I can tell you there is nothing like meeting our old friends, making some new, listening to answers to questions and concerns of other shareholders or shaking hands when looking them into their eyes with members of the Fairfax team.

You have to do it yourself one day, mean time I can tell you, Fairfax is OK, and I would argue much bettrer than that.

 

Cheers, Jack Wisniewski

 

Thank you, Jack, for your note.  :)

 

+1

 

Unfortunately, it is not easy for me to travel to Toronto each year, but I have done it a couple of times and I have always enjoyed the experience very much!  :)

 

giofranchi

 

“As time goes on I get more and more convinced that the right method in investment is to put fairly large sums into enterprises which one thinks one knows something about and in the management of which one thoroughly believes. It is a mistake to think that one limits one’s risk by spreading too much between enterprises about which one knows little and has no reason for special confidence. One’s knowledge and experience is definitely limited and there are seldom more than two or three enterprises at any given time which I personally feel myself entitled to put full confidence.” - John Maynard Keynes

 

 

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With regards to Fairfax's investment portfolio, I'm not sure if there would be any restrictions in their ability to invest in Berkshire Hathaway. After all, Markel invests in both BRK (their largest position) and Fairfax in their common equity portfolio.

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I am a long time Fairfax shareholder with more then 60% of my family capital located in FFH. Living around Toronto I feel it is my responsibility to participate in AGM and report to all who could not attend.

This was my 12th FFH AGM and I can tell you I never felt better. I believe our capital is as save as it can be (we all understand the risk) and we are ready to explode in due time.

I am not a gifted writer so it is difficult for me to write about all the events on wednesday and thursday, specially that they are growing fast and not always to my likening. I can tell you there is nothing like meeting our old friends, making some new, listening to answers to questions and concerns of other shareholders or shaking hands when looking them into their eyes with members of the Fairfax team.

You have to do it yourself one day, mean time I can tell you, Fairfax is OK, and I would argue much bettrer than that.

 

Cheers, Jack Wisniewski

 

Jack,...

 

good that you feel comfortable about FFH,... same as me,... but I already knew your thoughts before you wrote them here,...    ;) I felt great seeing regular faces in Toronto again.  Cheers to Sanjeev, Alnesh, Norman, Jack, Uccomal, CC, Tom, Glen, Andrew, Parker16, Francis, Mohnish and many more

 

I finally arrived back home again as I write these words.

 

 

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