Hey, Mr. Market! Do I really have to make FFH 50% of my portfolio?

[Cardboard]

Giofranchi,

 

You are now up to 1,413 posts while being a relatively new board member and I would say that the vast majority has been about Fairfax. What is the point spending so much time discussing a name that you know inside and out, and also everyone here, instead of spending a bit of this time trying to learn the skills that you say you don't have that others have to compound money at 20% a year?

 

Honestly, I don't get it. You obviously have some time available. Multiple ideas are being discussed on this board daily. The method of Ben Graham, Buffett and other is well explained and you seem to understand it. You seem intelligent. So, I really don't understand why you resign yourself to 10 to 15% a year while you probably would achieve better by simply trying.

 

Cardboard

[Partner24]

Guys, if you are good at timing the stock market as a whole and FFH stock price too and it serves you well, that's very fine for you.

 

I'm not good at predicting "when will the screwdrivers at Canadian Tire will be at a discounted prices from today". But that's not to say that I've tried that before. Regarding the numbers, I take a look a price/estimated intrinsic value per share. That dictate if I keep shares of a business or not.

 

Cheers!

 

 

 

 

 

[Parsad]

"Even Fairfax will go down in a dramatic correction".

 

The fact is nobody can really predict that for sure.

 

What will be mostly important is not what the scoreboard says, but what truly happens on the baseball field.

 

Well, nobody is certain that a party will take place if you drop off a keg of beer at a fraternity house on a Friday.

 

I believe there are others who think like me out there... meaning they will sell FFH to take full advantage of the market correction when it comes.  You increase your buying power of cheap equities when you sell Fairfax.

 

Yes definitely.  You always hear managers saying how they use "this stock as a proxy for cash", and often it's been Berkshire.  I think it's an absurd idea using any stock as cash, but I would say if you were going to do that, then Fairfax is probably a better proxy than Berkshire. 

 

We sold our Fairfax in 2008/2009 and bought stuff that was dirt cheap.  It was the last thing we sold after we had gone through the cash.  But the rational thing to do is to sell something at a discount, only to buy something far cheaper.  Buffett made a point of doing this in 1981, when he said he was selling stuff at 3x P/E to buy stuff at 2X P/E.  We would not hesitate to do it again!  Cheers! 

[constructive]

Yes definitely.  You always hear managers saying how they use "this stock as a proxy for cash", and often it's been Berkshire.  I think it's an absurd idea using any stock as cash, but I would say if you were going to do that, then Fairfax is probably a better proxy than Berkshire.

 

I agree.

 

But I find it even more puzzling when people say cash or another defensive asset is "the ultimate hedge" or something like that. Nope, short positions are the ultimate hedge.

[ERICOPOLY]

Yes definitely.  You always hear managers saying how they use "this stock as a proxy for cash", and often it's been Berkshire.  I think it's an absurd idea using any stock as cash, but I would say if you were going to do that, then Fairfax is probably a better proxy than Berkshire.

 

I agree.

 

But I find it even more puzzling when people say cash or another defensive asset is "the ultimate hedge" or something like that. Nope, short positions are the ultimate hedge.

 

Short positions need to be hedged or theoretically they can completely wipe out your portfolio.

 

[merkhet]

But I find it even more puzzling when people say cash or another defensive asset is "the ultimate hedge" or something like that. Nope, short positions are the ultimate hedge.

 

You're assuming that the short position "functions as expected." That seems, to me, no different than holding Fairfax and expecting it to "function as expected."

[hyten1]

uccmal

 

why do you think the banks will disappoint next week? considering how jpm and wfc have done recently (their earnings)

 

hy

 

FWIW, We probably wont have to wait too long to find out.  I just bought some puts again on my BAC position.  I expect the banks will disappoint next week, regardless if JPM and WFC set new earnings records.

[Kraven]

"Even Fairfax will go down in a dramatic correction".

 

The fact is nobody can really predict that for sure.

 

What will be mostly important is not what the scoreboard says, but what truly happens on the baseball field.

 

Well, nobody is certain that a party will take place if you drop off a keg of beer at a fraternity house on a Friday.

 

I believe there are others who think like me out there... meaning they will sell FFH to take full advantage of the market correction when it comes.  You increase your buying power of cheap equities when you sell Fairfax.

 

Yes definitely.  You always hear managers saying how they use "this stock as a proxy for cash", and often it's been Berkshire.  I think it's an absurd idea using any stock as cash, but I would say if you were going to do that, then Fairfax is probably a better proxy than Berkshire. 

 

We sold our Fairfax in 2008/2009 and bought stuff that was dirt cheap.  It was the last thing we sold after we had gone through the cash.  But the rational thing to do is to sell something at a discount, only to buy something far cheaper.  Buffett made a point of doing this in 1981, when he said he was selling stuff at 3x P/E to buy stuff at 2X P/E.  We would not hesitate to do it again!  Cheers!

 

Using a stock as a proxy for cash always amuses me. It's like using hamburger as a proxy for steak.

[constructive]

Short positions need to be hedged or theoretically they can completely wipe out your portfolio.

 

When I say short positions I also mean options as well as stock.

 

Obviously large single name short stock positions (a la Ackman) are not an effective hedge against large single name long stock positions. That wasn't my point at all.

 

I'm sure you know as well as anyone what hedges are. If someone is long AMZN, holding cash or holding WMT are not hedges in my opinion. Some people seem to think they are.

[Uccmal]

uccmal

 

why do you think the banks will disappoint next week? considering how jpm and wfc have done recently (their earnings)

 

hy

 

FWIW, We probably wont have to wait too long to find out.  I just bought some puts again on my BAC position.  I expect the banks will disappoint next week, regardless if JPM and WFC set new earnings records.

 

Its the way of things is it not?  The banks have run way up in anticipation.  The reality will not meet whats been anticipated.  I have small positions in WFC, and JPM, which I haven't traded at all for months, years in the case of WFC.

[Uccmal]

Giofranchi,

 

You are now up to 1,413 posts while being a relatively new board member and I would say that the vast majority has been about Fairfax. What is the point spending so much time discussing a name that you know inside and out, and also everyone here, instead of spending a bit of this time trying to learn the skills that you say you don't have that others have to compound money at 20% a year?

 

Honestly, I don't get it. You obviously have some time available. Multiple ideas are being discussed on this board daily. The method of Ben Graham, Buffett and other is well explained and you seem to understand it. You seem intelligent. So, I really don't understand why you resign yourself to 10 to 15% a year while you probably would achieve better by simply trying.

 

Cardboard

 

Interesting observation.  I agree. 

[link01]

Giofranchi,

 

You are now up to 1,413 posts while being a relatively new board member and I would say that the vast majority has been about Fairfax. What is the point spending so much time discussing a name that you know inside and out, and also everyone here, instead of spending a bit of this time trying to learn the skills that you say you don't have that others have to compound money at 20% a year?

 

Honestly, I don't get it. You obviously have some time available. Multiple ideas are being discussed on this board daily. The method of Ben Graham, Buffett and other is well explained and you seem to understand it. You seem intelligent. So, I really don't understand why you resign yourself to 10 to 15% a year while you probably would achieve better by simply trying.

 

Cardboard

 

Interesting observation.  I agree.

 

I enjoy gio's posts very much.

 

I hope he continues to kick the tires of ffh & his stalwart belief in its mngt every which way from sunday for as long as it remains controversial & polarizing in the current frothy investment regime.

 

its not like he's having a conversation with only himself, belching out stillborn musings into the silent void. there's a whole lot of different opinions piping up at every turn. in a public forum an engaging thread is likely a long thread.

[Parsad]

Giofranchi,

 

You are now up to 1,413 posts while being a relatively new board member and I would say that the vast majority has been about Fairfax. What is the point spending so much time discussing a name that you know inside and out, and also everyone here, instead of spending a bit of this time trying to learn the skills that you say you don't have that others have to compound money at 20% a year?

 

Honestly, I don't get it. You obviously have some time available. Multiple ideas are being discussed on this board daily. The method of Ben Graham, Buffett and other is well explained and you seem to understand it. You seem intelligent. So, I really don't understand why you resign yourself to 10 to 15% a year while you probably would achieve better by simply trying.

 

Cardboard

 

Interesting observation.  I agree.

 

I enjoy gio's posts very much.

 

I hope he continues to kick the tires of ffh & his stalwart belief in its mngt every which way from sunday for as long as it remains controversial & polarizing in the current frothy investment regime.

 

its not like he's having a conversation with only himself, belching out stillborn musings into the silent void. there's a whole lot of different opinions piping up at every turn. in a public forum an engaging thread is likely a long thread.

 

LOL!  I agree.  I suspect he talks about Fairfax because he's very comfortable with it, the long-term prospects and isn't interested in swinging for 15%+, when Fairfax can do 15% and no tax consequences. 

 

Other than a handful of people on here, virtually no one has come close to Prem's 24% compounded since inception (over 25 years), so let's not shoot the goose until you've all laid your golden eggs!  ;D 

 

Keep talking about Fairfax and Berkshire Gio, because that's why this board is called "The Corner of Berkshire & Fairfax"!  Cheers!

[giofranchi]

Giofranchi,

 

You are now up to 1,413 posts while being a relatively new board member and I would say that the vast majority has been about Fairfax. What is the point spending so much time discussing a name that you know inside and out, and also everyone here, instead of spending a bit of this time trying to learn the skills that you say you don't have that others have to compound money at 20% a year?

 

Honestly, I don't get it. You obviously have some time available. Multiple ideas are being discussed on this board daily. The method of Ben Graham, Buffett and other is well explained and you seem to understand it. You seem intelligent. So, I really don't understand why you resign yourself to 10 to 15% a year while you probably would achieve better by simply trying.

 

Cardboard

 

Cardboard,

I understand your point, and thanks for your question. I will try to explain.

 

First of all I think about myself as a businessman: I started my company in December 2004 with an initial capital of 25.000 Euros, and as of yesterday its equity is up to 1,530,830.46 Euros: a 62.25% CAGR in BV…  ;D ;D ;D

Of course, given my limited skills as an investor, the great majority of those earnings are operating earnings… thanks God I am clearly a better businessman than an investor! ;D

I soon realized that a service company like mine suffers from two great weaknesses: 1) It soon gets to a point where, to keep growing, politics is needed: maybe in the US or Canada things are different, but in Italy the construction business is deeply linked and influenced by politics… And, unfortunately, I hate politics… 2) It almost doesn’t need new capital, so what was I supposed to do with its earnings?

The solution to both weakness n.1 and weakness n.2 was immediately clear to me: diversify away from construction engineering services, purchasing other businesses. So, paraphrasing Mr. Buffett, I literally began extracting cash from a poor business, to put it into high-quality assets.

But I still view myself as a businessman, a business owner, I am interested in owning assets that will grow for a long time, creating much wealth along the way. I am not interested in trading in deeply undervalued stock, and out of them as soon as they reach IV… It simply is not the way I want to live the 12 hours I work each day! Passion + 10-15%, or boredom + 15-20%? I guess we all agree on the right answer!

 

Second, it is true I have some time to completely devote to investing and strategic thinking: both in the management of our engineering services and higher education services I am very thankful to a group of talented and motivated engineers, who constantly help me and without whom I would be lost! But, out of my 12 working hours, only 50% are devoted to investing and strategic thinking, the rest I still must commit to supervise operations and to some PR (which basically is politics to me, so I cannot stand it! ;D). Clearly, another weakness in my organization is that I don’t have a partner, who could be a COO I trust completely, and who could take off my shoulders the not so light burden to be constantly involved with operations.

So, though 6 hours a day are not that bad, I am reluctant to push for the highly coveted 20%… When I know other very smart and talented people spend 12 hours each day, just to achieve that same goal!

 

Finally, though I cannot be sure about it, I guess I spend an amount of time, writing about each company that I own, which is proportional to their weight in my firm’s portfolio! I do that for three reasons: 1) the larger a position gets to be in my portfolio, the more time I want to think about it, 2) to write helps me to clarify my thinking like nothing else, 3) to post my thinking on the board gives me the very much appreciated and useful feedback of other great investors: I seek confrontation, the more people disagree with me, the more warnings I get, the better!

 

“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

 

He liked to state, though who knows if it’s true, that he spent no more than one day per week thinking about his investments. ;)

 

giofranchi

 

[giofranchi]

Giofranchi,

 

You are now up to 1,413 posts while being a relatively new board member and I would say that the vast majority has been about Fairfax. What is the point spending so much time discussing a name that you know inside and out, and also everyone here, instead of spending a bit of this time trying to learn the skills that you say you don't have that others have to compound money at 20% a year?

 

Honestly, I don't get it. You obviously have some time available. Multiple ideas are being discussed on this board daily. The method of Ben Graham, Buffett and other is well explained and you seem to understand it. You seem intelligent. So, I really don't understand why you resign yourself to 10 to 15% a year while you probably would achieve better by simply trying.

 

Cardboard

 

Interesting observation.  I agree.

 

I enjoy gio's posts very much.

 

I hope he continues to kick the tires of ffh & his stalwart belief in its mngt every which way from sunday for as long as it remains controversial & polarizing in the current frothy investment regime.

 

its not like he's having a conversation with only himself, belching out stillborn musings into the silent void. there's a whole lot of different opinions piping up at every turn. in a public forum an engaging thread is likely a long thread.

 

LOL!  I agree.  I suspect he talks about Fairfax because he's very comfortable with it, the long-term prospects and isn't interested in swinging for 15%+, when Fairfax can do 15% and no tax consequences. 

 

Other than a handful of people on here, virtually no one has come close to Prem's 24% compounded since inception (over 25 years), so let's not shoot the goose until you've all laid your golden eggs!  ;D 

 

Keep talking about Fairfax and Berkshire Gio, because that's why this board is called "The Corner of Berkshire & Fairfax"!  Cheers!

 

Thank you, link01 and Parsad! Very nice words! :)

 

giofranchi

[Uccmal]

Gio, where are you?  No one suggested you go away.  From my perspective, what you received from Cardboard was a compliment, and a helpful suggestion.  And I agreed with him.  I actually read all your posts. 

 

Al.

 

 

[giofranchi]

Gio, where are you?  No one suggested you go away.  From my perspective, what you received from Cardboard was a compliment, and a helpful suggestion.  And I agreed with him.  I actually read all your posts. 

 

Al.

 

Hi Al!

Thank you very much, and don’t worry: I have gone nowhere!  ;D ;D

I just heeded Cardboard’s suggestion and read about a company I didn’t know very well: SPLP – Steel Partners Holdings. It is a small-cap, led by a very shrewd capital allocator, who is an activist value investor, with an excellent track-record as hedge fund manager (+20% annualized sustained for 18 years), and who is still young. He has already been able to increase Diluted Normalized EPS for SPLP as follows: 2009 ($0.3), 2010 $0.6, 2011 $0.97, 2012 $1.22, and there is a lot more growth to come in future years. What do you have to pay to partner with him today? 0.8 x BVPS.

So, I have posted some thoughts and articles on the SPLP thread.

 

Cheers!

 

Gio

 

[giofranchi]

Re: Hedge losses.  The hedges were written around 1060 S&P 500, Russell, and other indexes at equivalent levels.  1662 to 1060 is a 40% drop Just to break even.  Does anyone think that FFh will sell these hedges somewhere on the way down and take their losses.  I dont.  FFH has drank the Jaoan Koolaid, against all demographic and economic evidence to the contrary.  Also, if the S&p drops 40% what happens to RIM, Bkir etc.  Rim is OOB.  BKIR has to run another stock dilution.  ABX (resolute) is OOB.  The way I see it the losses from the hedges are permanent.

 

Al,

I had previously missed this post of yours… FFH had first started to be 100% hedged when the S&P500 was at 1060. That certainly doesn’t mean their average hedge level today is 1060… in fact, I guess it should be higher!

The right way to look at equity hedges imo is the following:

 

Fairfax holds significant investments in equity and equity-related securities. In response to the significant appreciation in equity market valuations and uncertainty in the economy, the company has hedged its equity investment exposure. At March 31, 2013, equity hedges represented approximately 104.5% of the company's equity and equity-related holdings.

 

As of March 31, 2013, equity and equity-related securities were worth $4,797.0 (Common stocks) + $593.0 (Preferred stocks) + $1,322.2 (Investments in associates) = $6,712.2 million.

 

If equity hedges represented approximately 104.5% of that amount, they translate into a short position worth $6,712.2 x 1.045 = $7,014.25 million.

 

The cumulative losses of 2010, 2011, and 2012 because of equity hedges are ($1,528.2) million, and in Q1 2013 they recorded another loss of ($592.8 ) million. For a total of ($1,528.2) + ($592.8 ) = ($2,121) million.

 

Now how much would a short position worth $7,014.25 million have to rise, and correspondently how much would the market have to fall, to recoup a ($2,121) million loss? 2,121 / 7,014 = 30.24%.

 

To keep protecting 100% ever increasing investments in equity and equity-related securities, FFH surely realized some gains, but also must have somewhat averaged down on its short positions. Don’t you agree?

Am I completely off the mark here?

 

giofranchi

 

[giofranchi]

I am seriously considering selling all my FFh and buying back at a later date. 

 

We are under absolutely saturated conditions inToronto.  Now I know flooding is not directly covered but all sorts of ancillary coverages are provided that relate to Canada's largest city being flooded.  Also, you tend to honour large commercial customers when they make claims, if there is some ambiguity. 

 

If I were a betting man I would suggest that FFH is probably looking at a billion or more in losses this quarter from the assorted events.  Add in another half billion from the hedges.  Another major hit from Rimm.  I am putting book value under 300, after today.

 

Ok, I am using Al’s post not as a critique towards him… but a critique it surely is! And it is a critique towards anyone who think FFH successes and misfortunes can be accurately timed, and therefore it is possible to jump in at 0.9 x BV and sell at BV, repeating the process over and over again.

 

FFH lost money in Q2 2013, but let’s look at the results:

- 94.2 CR, producing and underwriting profit of $84 million

- $71 million of gains in equity and equity-related investments

- NO LOSS FROM EQUITY HEDGES

- ($496) million of bonds losses

- bonds losses of course are only paper losses, while FFH received $112 million in cash from those same bonds

- BV decreased, but only to $362

 

And let’s look at equity results for the first 6 months of 2013: including the losses from equity hedges, FFH has recorded a gain of $176 million out of a portfolio worth $583.7 (preferred stocks) + $4,704.2 (common stocks) + $1,400.2 (investments in associates) = $6,688.1 million. A 2.63% return, or a 5.26% annualized. Now I ask: what’s so wrong with a 5.26% annual return from stocks, when you are as defensive as you have ever been in the past, and as you will probably ever be in the future?

 

Will the stock price fall after yesterday’s results? It might. After all FFH has lost money… But, please, look at OdysseyRe: 84.4% CR for the first 6 months of 2013… even though I cannot say it is a Lancashire kind of result, it is impressive nonetheless, isn’t it? And the mind behind OdysseyRe success is now also behind all the insurance and reinsurance operations at FFH. In a low returns investment world, they are focusing on their insurance and reinsurance operations, and they are getting better and better. That’s exactly what I would be doing if I were in their stead, and therefore, although I might be mistaken, I surely have nothing to complain about!

 

I will use any further weakness in the FFH stock price to buy more.

 

I feel no shame in being found still owning a share when the bottom of the market comes. I do not think it is the business of … [a] serious investor to cut and run on a falling market … I would go much further than that. I should say that it is from time to time the duty of a serious investor to accept the depreciation of his holdings with equanimity and without reproaching himself. Any other policy is antisocial, disruptive to confidence and incompatible with the working of the economic system. An investor is aiming, or should be aiming, primarily at long period results and should be judged solely by these.

--John Maynard Keynes

 

giofranchi

 

[Ross812]

 

FFH lost money in Q2 2013, but let’s look at the results:

- 94.2 CR, producing and underwriting profit of $84 million

- $71 million of gains in equity and equity-related investments

- NO LOSS FROM EQUITY HEDGES

- ($496) million of bonds losses

- bonds losses of course are only paper losses, while FFH received $112 million in cash from those same bonds

- BV decreased, but only to $362

 

And let’s look at equity results for the first 6 months of 2013: including the losses from equity hedges, FFH has recorded a gain of $176 million out of a portfolio worth $583.7 (preferred stocks) + $4,704.2 (common stocks) + $1,400.2 (investments in associates) = $6,688.1 million. A 2.63% return, or a 5.26% annualized. Now I ask: what’s so wrong with a 5.26% annual return from stocks, when you are as defensive as you have ever been in the past, and as you will probably ever be in the future?

 

 

Historically Fairfax has been an average underwriter and average underwriters don't make money. I'm impressed by the 94.2 CR but I view it as a one off event as they have not proven they can maintain that kind of underwriting. You are buying Fairfax for their investment acumen; however, they have fully hedged their portfolio over the last two years and missed out on a once in a lifetime opportunity to pick up some fantastic bargains. Where would Fairfax be if instead of losing 2B on equity hedges, would have used that money to buy bargains over the last two years? The opportunity cost of the money lost is closer to 2.5B-3.5B.

 

$496B in Bond losses is not a paper loss. The gains and book value were overstated to begin with. If you have a 5% note with a $100 par value that was trading at $130 six months ago and falls to $115, that is not a paper loss. What you have in Fairfax is a fantastic manager in a mediocre business (insurance). The management is sitting on a collection of assets that are trading at their highest premium in history (bonds). They are great investors and are managing to grow their equity portfolio slowly, but they made an absolutely terrible investment 2 years ago that has cost the company $2B (the hedge). 

 

If you were pitched an idea, say of a company that makes widgets and breaks even on them. Owns a bunch of gold that they rent out for 4% a year. And has had a darn good track record of making acquisitions, except their largest acquisition (50% of their portfolio) had destroyed the value of their other holdings for the last two years. When asked, they say don't worry, the portfolio will not lose any value but our traditional 15% returns are going to be 5% until we sell. Would you buy? 

[Kraven]

I am no FFH expert.  Since they are known for their investing acumen, just out of curiosity what major stock picks are they known for?  By that I mean, what stock or stocks have they selected that one would say defines them as investing gurus?  As an example, when one discusses Buffett one of the first stocks that would be discussed would be KO.  I can think of numerous Buffett slam dunks, but can't think of one from FFH which is more representative of my lack of awareness I'm sure.  Please enlighten me.  Please also do not mention the 2008 macro bet.  There is much more luck involved in that than people want to admit and in any case, even if it was to be assumed that there was no luck involved the chance that such success is replicable is open for debate.

[plato1976]

gio, obviously you are tracking this one more closely than I am

so I want to shamelessly leverage your knowledge...

first, what tricks did they play so that they didn't have equity hedge loss in 2q ?

second, is the book value 360 literally now , or 350 (b/c we need to deduce the $10 div) ?

 

I am seriously considering selling all my FFh and buying back at a later date. 

 

We are under absolutely saturated conditions inToronto.  Now I know flooding is not directly covered but all sorts of ancillary coverages are provided that relate to Canada's largest city being flooded.  Also, you tend to honour large commercial customers when they make claims, if there is some ambiguity. 

 

If I were a betting man I would suggest that FFH is probably looking at a billion or more in losses this quarter from the assorted events.  Add in another half billion from the hedges.  Another major hit from Rimm.  I am putting book value under 300, after today.

 

Ok, I am using Al’s post not as a critique towards him… but a critique it surely is! And it is a critique towards anyone who think FFH successes and misfortunes can be accurately timed, and therefore it is possible to jump in at 0.9 x BV and sell at BV, repeating the process over and over again.

 

FFH lost money in Q2 2013, but let’s look at the results:

- 94.2 CR, producing and underwriting profit of $84 million

- $71 million of gains in equity and equity-related investments

- NO LOSS FROM EQUITY HEDGES

- ($496) million of bonds losses

- bonds losses of course are only paper losses, while FFH received $112 million in cash from those same bonds

- BV decreased, but only to $362

 

And let’s look at equity results for the first 6 months of 2013: including the losses from equity hedges, FFH has recorded a gain of $176 million out of a portfolio worth $583.7 (preferred stocks) + $4,704.2 (common stocks) + $1,400.2 (investments in associates) = $6,688.1 million. A 2.63% return, or a 5.26% annualized. Now I ask: what’s so wrong with a 5.26% annual return from stocks, when you are as defensive as you have ever been in the past, and as you will probably ever be in the future?

 

Will the stock price fall after yesterday’s results? It might. After all FFH has lost money… But, please, look at OdysseyRe: 84.4% CR for the first 6 months of 2013… even though I cannot say it is a Lancashire kind of result, it is impressive nonetheless, isn’t it? And the mind behind OdysseyRe success is now also behind all the insurance and reinsurance operations at FFH. In a low returns investment world, they are focusing on their insurance and reinsurance operations, and they are getting better and better. That’s exactly what I would be doing if I were in their stead, and therefore, although I might be mistaken, I surely have nothing to complain about!

 

I will use any further weakness in the FFH stock price to buy more.

 

I feel no shame in being found still owning a share when the bottom of the market comes. I do not think it is the business of … [a] serious investor to cut and run on a falling market … I would go much further than that. I should say that it is from time to time the duty of a serious investor to accept the depreciation of his holdings with equanimity and without reproaching himself. Any other policy is antisocial, disruptive to confidence and incompatible with the working of the economic system. An investor is aiming, or should be aiming, primarily at long period results and should be judged solely by these.

--John Maynard Keynes

 

giofranchi

[Valuebo]

S&P500 is up some 6% since the end of June so I don't see anything to cheer at regarding the hedges. BV at a certain time is just a snapshot. The hedges have been hurting performance terribly and mentioning the fact that they didn't lose anything on them as a positive is just ... silly? ;)

 

Gio, some will trade the stock and others won't. Personal preferences, taxes, personality, etc will influence that decision. It turned out ok for me with an annual 10%+ return since 2011 in FFH while otherwise I'd be stuck with 10% at best.

[SharperDingaan]

There are only 3 ways one can get zero change on the equity hedges ....

 

(1) They were lifted, & therefore do not exist anymore (2) They have been re-designated out of AFS, & therefore do not mark to market anymore (3) There is a new & effective offsetting cross hedge between equity & FI, that essentially designates the equity leg as AFS & the FI leg as HTM. Most would expect (3) & (2), plus a little of (1).

 

If there have been re-designations, it is highly likely that there has also been a fundamental reassessment of the entire equity portfolio. A slick solution & not unreasonable given the controversy these hedges have generated.

 

SD

[wknecht]

second, is the book value 360 literally now , or 350 (b/c we need to deduce the $10 div) ?

It's 360, the dividend was paid in Q1 and is now reflected in BV.