Prem Watsa and Respect.

[val740]

This discussion is a good example of why long-term investing is difficult. No company - or investor - regardless of its/his past history is without risk. In hindsight, some investments look like they were easy, but sitting tight for years (Munger's sitting on your a*&) requires patience and conviction (it's hard and most do not do it).

 

Conviction is hard to attain and is always haunted by the possibility that something has changed that led to the positive past performance.

 

For the record, I don't think Berkshire/Buffett has been immuned from this. There have always been reasons to second guess, i.e. "too big", "lost his touch", overvalued, "too old", macro concerns, etc. If the standard was not making any mistakes no one would pass muster.

 

Prem has plainly stated that the ride would be lumpy. Little is being said about the positives: the 3:1 ratio of investments to equity, the massive liquidity (fire power) in the portfolio, the cheap (now) insurance against deflation and a market decline, the optionality if these bets come to fruition, the improving combined ratio, the exposure to emerging insurance markets, and the Fairfax investing and managerial talent pool whose compensation is aligned with shareholders. 

[mcliu]

It's quite interesting to see human nature at work here. People are getting all upset over a little turbulence when the company's survived thunderstorms.

 

1) The BBRY trade is a just another merger-arb gone wrong, why blame the acquirer? Mergers fall through all the time. Rather than investing based on what Prem says and blaming him when it doesn't work out, it probably makes more sense to do adequate due diligence.

 

2) FFH has their own investment style that's different from BRK/MKL and it's worked for them. Why shouldn't they stick with what they're comfortable with?

[cogitator99]

It's quite interesting to see human nature at work here. People are getting all upset over a little turbulence when the company's survived thunderstorms.

 

1) The BBRY trade is a just another merger-arb gone wrong, why blame the acquirer? Mergers fall through all the time. Rather than investing based on what Prem says and blaming him when it doesn't work out, it probably makes more sense to do adequate due diligence.

 

2) FFH has their own investment style that's different from BRK/MKL and it's worked for them. Why shouldn't they stick with what they're comfortable with?

 

+1. I think some of the posters reacting a little too negatively. It's unfortunate that PW made all those confident statements in public, but its quite likely that he discovered compelling reasons during the intervening period that caused him to strike off in a different direction. We will see soon enough -- the story has yet to be fully written.

 

As for the merger arb trade, its not like PW pressed the "buy" button for you.

[DCG]

In all honesty, my confidence in Prem has declined quite a bit in recent years. He seems to latch onto ideas, and then refuse to consider changing his views when it's obvious that he's wrong. Not sure if it's ego or what.

 

 

He pretty much completely missed out on what was likely the greatest 5 years of the stock market in his lifetime over the last several years. He got an idea about deflation and prepared for that, and refused to waiver on that belief regardless of how obvious it was that he was wrong. The mess he got into with Blackberry definitely hurts his reputation. It was an area far beyond his circle of confidence and he got way too involved in the company just to try to save face and not wanting to admit he was wrong. I know some people on here are friends with Prem, so it's tough to hear some opposing views (in the same way that people were denying that Tom Ward could have possibly done anything wrong at Sandridge), but many of his investment decisions in recent years appear to have been fueled by pure emotion.

[giofranchi]

He got an idea about deflation and prepared for that, and refused to waiver on that belief regardless of how obvious it was that he was wrong.

 

Sincerely, I don’t think it is obvious at all… In fact, I don’t know much about macro, but, if I were to make a bet on the future state of developed countries economies, I would still side with Mr. Watsa… It will surely become clear… But I guess it will just take a little longer!

 

giofranchi

 

[obtuse_investor]

 

He pretty much completely missed out on what was likely the greatest 5 years of the stock market in his lifetime over the last several years. He got an idea about deflation and prepared for that, and refused to waiver on that belief regardless of how obvious it was that he was wrong. The mess he got into with Blackberry definitely hurts his reputation. It was an area far beyond his circle of confidence and he got way too involved in the company just to try to save face and not wanting to admit he was wrong. I know some people on here are friends with Prem, so it's tough to hear some opposing views (in the same way that people were denying that Tom Ward could have possibly done anything wrong at Sandridge), but many of his investment decisions in recent years appear to have been fueled by pure emotion.

 

I think that is quite unfair.

 

Prem and other value investing greats have earned their honours over the decades because they aren't emotional, but rather, quite rational in the face of Mr. Market's emotions. That is how value investors succeed.

 

Deflation isn't an unfounded belief that is stuck in FFH management's head, but rather fundamental reality that is in plain view, that Mr. Market is ignoring.

[DCG]

He got an idea about deflation and prepared for that, and refused to waiver on that belief regardless of how obvious it was that he was wrong.

 

Sincerely, I don’t think it is obvious at all… In fact, I don’t know much about macro, but, if I were to make a bet on the future state of developed countries economies, I would still side with Mr. Watsa… It will surely become clear… But I guess it will just take a little longer!

 

giofranchi

 

 

The federal reserve would have done everything in its power to fight deflation over the last several years if it was a real possibility.

[Guest valueInv]

In all honesty, my confidence in Prem has declined quite a bit in recent years. He seems to latch onto ideas, and then refuse to consider changing his views when it's obvious that he's wrong. Not sure if it's ego or what.

 

 

He pretty much completely missed out on what was likely the greatest 5 years of the stock market in his lifetime over the last several years. He got an idea about deflation and prepared for that, and refused to waiver on that belief regardless of how obvious it was that he was wrong. The mess he got into with Blackberry definitely hurts his reputation. It was an area far beyond his circle of confidence and he got way too involved in the company just to try to save face and not wanting to admit he was wrong. I know some people on here are friends with Prem, so it's tough to hear some opposing views (in the same way that people were denying that Tom Ward could have possibly done anything wrong at Sandridge), but many of his investment decisions in recent years appear to have been fueled by pure emotion.

 

+1.  When you see a body of evidence to the contrary, you question long held assumptions.

 

Wasn't there some problem with Resolute Forest or something?

 

Another point to remember is it is HW , a committee driving decisions, not just PW.

[giofranchi]

He got an idea about deflation and prepared for that, and refused to waiver on that belief regardless of how obvious it was that he was wrong.

 

Sincerely, I don’t think it is obvious at all… In fact, I don’t know much about macro, but, if I were to make a bet on the future state of developed countries economies, I would still side with Mr. Watsa… It will surely become clear… But I guess it will just take a little longer!

 

giofranchi

 

 

The federal reserve would have done everything in its power to fight inflation over the last several years if it was a real possibility.

 

Inflation? I guess you meant deflation… Am I right?

And, yes! The Fed has done all it could to fight deflation… but there is still no evidence it will ultimately be successful… I am not saying it won’t be… I am just saying that we still have to wait a bit longer.

 

giofranchi

 

[DCG]

He got an idea about deflation and prepared for that, and refused to waiver on that belief regardless of how obvious it was that he was wrong.

 

Sincerely, I don’t think it is obvious at all… In fact, I don’t know much about macro, but, if I were to make a bet on the future state of developed countries economies, I would still side with Mr. Watsa… It will surely become clear… But I guess it will just take a little longer!

 

giofranchi

 

 

The federal reserve would have done everything in its power to fight inflation over the last several years if it was a real possibility.

 

Inflation? I guess you meant deflation… Am I right?

And, yes! The Fed has done all it could to fight deflation… but there is still no evidence it will ultimately be successful… I am not saying it won’t be… I am just saying that we still have to wait a bit longer.

 

giofranchi

 

 

yeah...sorry..deflation.

[DCG]

 

He pretty much completely missed out on what was likely the greatest 5 years of the stock market in his lifetime over the last several years. He got an idea about deflation and prepared for that, and refused to waiver on that belief regardless of how obvious it was that he was wrong. The mess he got into with Blackberry definitely hurts his reputation. It was an area far beyond his circle of confidence and he got way too involved in the company just to try to save face and not wanting to admit he was wrong. I know some people on here are friends with Prem, so it's tough to hear some opposing views (in the same way that people were denying that Tom Ward could have possibly done anything wrong at Sandridge), but many of his investment decisions in recent years appear to have been fueled by pure emotion.

 

I think that is quite unfair.

 

Prem and other value investing greats have earned their honours over the decades because they aren't emotional, but rather, quite rational in the face of Mr. Market's emotions. That is how value investors succeed.

I don't think it's unfair. I know he's had a solid long-term track record. I just don't think that should make him immune from criticism. It's fine that people gave him leeway for mistakes in a couple year period, but it's going on about 6 years of poor investing results now. If they had just put their cash into an index fund for the last 6 years Fairfax would be quite a stronger and larger company.

 

And as I said, it seems like some people on here's friendship and close connections to Prem and Fairfax is clouding their ability to look at the company like an outsider. I'm a Fairfax shareholder. I want them to do real well. I just can't honestly say I haven't been disappointed with a lot of their decisions lately.

[Kraven]

As I mentioned in another thing criticism of Watsa is fair game so long as it doesn't veer into the personal.  He is a public figure who runs a public company.  It comes with the territory.  As they say, if you can't stand the heat get out of the kitchen.  Frankly, my guess is that while no one likes to be criticized I am sure he welcomes the various opinions in some fashion. 

 

As an aside, the emotions are running high on these threads.  Some are acting like Watsa left them at the alter or something.  One thing I learned in my career is that when you put someone on a pedestal your thinking becomes flawed and mushy.  It doesn't mean that people aren't deserving of respect, some more than others, but that no one should be viewed as above you or superior to you.  In a work situation, for example, it may be that because of the work structure one does have to take on that role, but absent some pre-existing relationship of that sort no one should be viewed as your better. 

 

Keep an open mind and view their successes and mistakes in the proper context.  I too think the whole BBRY situation is a debacle, but it's one failed deal over a lifetime that's occurred and probably to come.  Anyone who has been involved in deals over a long career is cognizant of the fact that some work out better than others.  Some turn out to be wildly successful (perhaps due to luck) and some turn out to be miserable failures, but you make your notch in the belt and move on to the next one while trying to learn what you can.  One deal doesn't make (or break) a career.  And in terms of the disappointed feelings, as Gordon Gekko told young Bud Fox, "if you need a friend, get a dog".  It's nothing personal.

[gary17]

my 2 cents:

 

- Prem & WEB are from different backgrounds , born in different eras and have exposure to different environments... can't judge how one will act in another person's situation - just too tough to call. 

 

- Deflation was a real risk and still is in my opinion - so I think it's a good call - but I probably wouldn't have hedged like he had. 

 

- Since WEB had cash flowing businesses, i'm guessing he is less concerned about deflation / recession as the cash flow will allow him to buy cheap stocks.

 

- am i correct that Prem has less cash flowing business so he kinda had no choice but to hedge to protect the equity portfolio?

 

- one thing i kept finding out about investing , and yes, i'm only 4 years into this game, is to be flexible - being too 'theoretical' doesn't help sometimes...  the market is irrational and at times it is not the wrong thing to be a bit irrational or flexible rather than holding firm on some notion, even if supported by sound theory / data.  we are dealing with not just money here, but mostly emotions.

 

- Prem never said he is buffett , but he certainly does say that is the model he is going after very early on his annual letters though -so it's not unreasonable for people to compare him to Buffett

 

- i think while long term investment makes sense, i constantly think about the value of time and if the time & capital could be better off in some other asset classes...    the day we are born we all have unlimited potential wealth, which declines over time and almost zero the day we die - the idea is to convert potential wealth into real wealth over time through decisions made throughout the lifetime -  so while time is the best thing for a good investment, it could be very bad for a poor one.... as that time lost is never coming back.       

 

- in conclusion i think Prem is a great investor, as great as WEB remains to be seen since he is younger. i'm not fond of all the decisions that's made, but he probably did a better job than i could have so at the right price i'd buy.    one man's trash is another man's gold bar =)

 

 

[obtuse_investor]

 

He pretty much completely missed out on what was likely the greatest 5 years of the stock market in his lifetime over the last several years. He got an idea about deflation and prepared for that, and refused to waiver on that belief regardless of how obvious it was that he was wrong. The mess he got into with Blackberry definitely hurts his reputation. It was an area far beyond his circle of confidence and he got way too involved in the company just to try to save face and not wanting to admit he was wrong. I know some people on here are friends with Prem, so it's tough to hear some opposing views (in the same way that people were denying that Tom Ward could have possibly done anything wrong at Sandridge), but many of his investment decisions in recent years appear to have been fueled by pure emotion.

 

I think that is quite unfair.

 

Prem and other value investing greats have earned their honours over the decades because they aren't emotional, but rather, quite rational in the face of Mr. Market's emotions. That is how value investors succeed.

[/size]

[/size]I don't think it's unfair. I know he's had a solid long-term track record. I just don't think that should make him immune from criticism. It's fine that people gave him leeway for mistakes in a couple year period, but it's going on about 6 years of poor investing results now. If they had just put their cash into an index fund for the last 6 years Fairfax would be quite a stronger and larger company.

 

I am not arguing against the criticism-- it is completely valid and should flow freely. That is something that comes as part of the job for people like PW and HWIC.

 

What I have an issue with is your comment about deflation being just some random idea that came in HWIC's head and stuck, like a mind virus. I repeat that what has made value investors, in general, successful is the ability to stand strong (with the backing of fundamental data) in the face of short term market insanity and reap the benefits in the long term. That is the only edge value investors have-- what else could there be?

 

Value investing is successful over time because rationality reigns supreme over emotions.

 

I see HWIC doing this exact thing and being attacked for sticking to their fundamentally sound conviction. When you do this unfair attack, you are attacking the very fundamental of value investing methodology.

 

[premfan]

 

He pretty much completely missed out on what was likely the greatest 5 years of the stock market in his lifetime over the last several years. He got an idea about deflation and prepared for that, and refused to waiver on that belief regardless of how obvious it was that he was wrong. The mess he got into with Blackberry definitely hurts his reputation. It was an area far beyond his circle of confidence and he got way too involved in the company just to try to save face and not wanting to admit he was wrong. I know some people on here are friends with Prem, so it's tough to hear some opposing views (in the same way that people were denying that Tom Ward could have possibly done anything wrong at Sandridge), but many of his investment decisions in recent years appear to have been fueled by pure emotion.

 

I think that is quite unfair.

 

Prem and other value investing greats have earned their honours over the decades because they aren't emotional, but rather, quite rational in the face of Mr. Market's emotions. That is how value investors succeed.

[/size]

[/size]I don't think it's unfair. I know he's had a solid long-term track record. I just don't think that should make him immune from criticism. It's fine that people gave him leeway for mistakes in a couple year period, but it's going on about 6 years of poor investing results now. If they had just put their cash into an index fund for the last 6 years Fairfax would be quite a stronger and larger company.

 

I dont really have anything new to add to the convo. But, prem and his team are what they are. With fairfax you get

 

1.) Insurance Float

2.) A team with a above average track record for decades

3.) Graham type investors. They like buying things that are cheap that need some tender loving care.

4.) A candid owner/operator with Prem

5.) Macro focused team

 

I think its important to mentally frame the companies that you own.  Companies are what they are. The future is always now. What companies are doing now is the future. So when people so "x" will turn this into a brk type business. Ask yourself are there any hints of this according NOW? If no you are not acting rational and are bound to feel heartbroken due to your unreasonable expectations. Not having respect for someone who built a company from scratch into a multi billion dollar company is silly and shows me that people that think that way have never run a small business in the real world.

 

So:

Mentally frame companies into categories. You can have a next brk group, garp, or whatever. Be aware that the future is always now and actions taken now need to reflect your mental frame for the company.

 

The heart break happens so to speak when you think you framed the company properly and something happens to ruin that perception. At that point there is nothing you can do and either you change the frame and accept . Or leave the relationship and find a new guru.

 

 

 

[jay21]

As I mentioned in another thing criticism of Watsa is fair game so long as it doesn't veer into the personal.  He is a public figure who runs a public company.  It comes with the territory.  As they say, if you can't stand the heat get out of the kitchen.  Frankly, my guess is that while no one likes to be criticized I am sure he welcomes the various opinions in some fashion. 

 

As an aside, the emotions are running high on these threads.  Some are acting like Watsa left them at the alter or something.  One thing I learned in my career is that when you put someone on a pedestal your thinking becomes flawed and mushy.  It doesn't mean that people aren't deserving of respect, some more than others, but that no one should be viewed as above you or superior to you.  In a work situation, for example, it may be that because of the work structure one does have to take on that role, but absent some pre-existing relationship of that sort no one should be viewed as your better. 

 

Keep an open mind and view their successes and mistakes in the proper context.  I too think the whole BBRY situation is a debacle, but it's one failed deal over a lifetime that's occurred and probably to come.  Anyone who has been involved in deals over a long career is cognizant of the fact that some work out better than others.  Some turn out to be wildly successful (perhaps due to luck) and some turn out to be miserable failures, but you make your notch in the belt and move on to the next one while trying to learn what you can.  One deal doesn't make (or break) a career.  And in terms of the disappointed feelings, as Gordon Gekko told young Bud Fox, "if you need a friend, get a dog".  It's nothing personal.

 

Kraven, I am in agreement with you on a lot of what you are saying (even though my investments can be considered to be centered around gurus).  In particular, I am surprised to see "emotions running high."  Besides, the BBRY deal not going through, weren't most of what people upset about highly visible?  How can you criticize the hedges and the long duration bond portfolio after the fact?  Most people knew how they were positioned and the risks associated with that.  But now that that hasn't led to considerable BV growth, I feel people are upset.  Maybe I am missing something.

[ragu]

Most people knew how they were positioned and the risks associated with that.  But now that that hasn't led to considerable BV growth, I feel people are upset.  Maybe I am missing something.

(emphasis added)

 

You really aren't missing much. For those that were opposed to his position, the best course of action would've been to not own FFH.

 

FWIW, re. BBRY, I think it'd have been best if Watsa hadn't said anything at all. In hindsight, I'd bet he regrets it.

 

Best,

Ragu

[Kraven]

As I mentioned in another thing criticism of Watsa is fair game so long as it doesn't veer into the personal.  He is a public figure who runs a public company.  It comes with the territory.  As they say, if you can't stand the heat get out of the kitchen.  Frankly, my guess is that while no one likes to be criticized I am sure he welcomes the various opinions in some fashion. 

 

As an aside, the emotions are running high on these threads.  Some are acting like Watsa left them at the alter or something.  One thing I learned in my career is that when you put someone on a pedestal your thinking becomes flawed and mushy.  It doesn't mean that people aren't deserving of respect, some more than others, but that no one should be viewed as above you or superior to you.  In a work situation, for example, it may be that because of the work structure one does have to take on that role, but absent some pre-existing relationship of that sort no one should be viewed as your better. 

 

Keep an open mind and view their successes and mistakes in the proper context.  I too think the whole BBRY situation is a debacle, but it's one failed deal over a lifetime that's occurred and probably to come.  Anyone who has been involved in deals over a long career is cognizant of the fact that some work out better than others.  Some turn out to be wildly successful (perhaps due to luck) and some turn out to be miserable failures, but you make your notch in the belt and move on to the next one while trying to learn what you can.  One deal doesn't make (or break) a career.  And in terms of the disappointed feelings, as Gordon Gekko told young Bud Fox, "if you need a friend, get a dog".  It's nothing personal.

 

Kraven, I am in agreement with you on a lot of what you are saying (even though my investments can be considered to be centered around gurus).  In particular, I am surprised to see "emotions running high."  Besides, the BBRY deal not going through, weren't most of what people upset about highly visible?  How can you criticize the hedges and the long duration bond portfolio after the fact?  Most people knew how they were positioned and the risks associated with that.  But now that that hasn't led to considerable BV growth, I feel people are upset.  Maybe I am missing something.

 

I think a lot of people feel very passionate about it.  That's not always a bad thing (and is probably good in most areas of life), but can be bad in investing.