Decline

[Kraven]

Gio:

 

I'm going to Italy next year to visit you to get some good tips from you!

 

No, I am certainly not as good as other board members… I am very well aware of that!

I just wanted to point out that I don’t need to do things I don’t understand… because, although I will never achieve Eric’s or Packer’s returns, I can live quite comfortably with mine! And I sleep soundly at night! ;)

 

Gio

 

Gio, it's not about being as good or not as good as other board members. You know yourself and what works for you and what you are comfortable with and you've been successful with it. That puts you about 2 steps ahead of most people. You have almost certainly noticed there are a number of investors who always believe there is something they are missing. That there is something just beyond their grasp that if they could just grab ahold of would ensure a path to the investor land of milk and honey.  You know what you can do and what you can't. I wouldn't keep justifying myself if I were you. While I personally wouldn't agree with your FFH analysis I understand your rationale. I think at this point your response to the constant drumbeat against it should just be a nice hearty "F you and the horse you rode in on .... but best of luck!"

[TwoCitiesCapital]

I think it's wrong to look at it from a point of right or wrong because that suggests that Watsa is making a market directional bet.

 

The equity hedges clearly aren't as he has hedged 100% and has recently rebalanced to maintain 100%. If he were making a directional bet, his net equity exposure would have to be significantly negative and for a decent period of time.

 

The deflation hedges are a little less clear since he seems to be adding exposure over time; however, Watsa has raised points in the past. He jas reminded us that Japan didn't experience deflation until 5 years after that crisis. The slack in the U.S. and European labor forces,  the low interest rate environment,  and continuation of QE over the last five years all support the argument that deflation is still the biggest danger. Its hard to fault Watsa hedging HIS business from such an economic catastrophe. 

 

If you're thinking in terms of "right" and "wrong" you're assuming he's making a market directional bet which isn't currently supported by the evidence.  He's simply being cautious and you can't be "right" or "wrong" by being careful.

 

Why hedge 100% of your equity portfolio? Why not 50% ? Why not hold cash instead?

 

Not hedging 100% of the portfolio is making a market directional bet. Had he only hedged 50%, that would still mean he's "betting" in a more bullish favor. He's market neutral...what a proper hedge should be.

 

He could have held cash - to hold enough cash to hedge the downturn in the equity portfolio and to protect ratings, I imagine that would have required him to liquidate a large number of positions which has it's own complications with it. Hedging allows him to have exposure to his alpha - liquidating and holding cash doesn't do that. Now, in hindsight, you can argue that holding cash would have turned out better, but that's a different argument. Everything is clear in hindisght...

 

I take offence to this since it is not "HIS" business, it's a public company and it is owned by shareholders.  Yes, he is a large shareholder but it's not HIS business. 

 

Tks,

S

 

Its hard to fault Watsa hedging HIS business from such an economic catastrophe. 

 

He built it into what it is. He, and a group of people he hand selected, run the company and control it's directions. He has the majority voting position in the shares. And his investment committee is the reason that we're all in investors. The only thing you do as a shareholder is provide liquidity in the market for share ownership making it easier for them to issue equity in the future. If you feel that is doing enough to deserve being "offended" at my calling it his company, well...I don't know what to tell you.

[giofranchi]

Gio, it's not about being as good or not as good as other board members. You know yourself and what works for you and what you are comfortable with and you've been successful with it. That puts you about 2 steps ahead of most people. You have almost certainly noticed there are a number of investors who always believe there is something they are missing. That there is something just beyond their grasp that if they could just grab ahold of would ensure a path to the investor land of milk and honey.  You know what you can do and what you can't. I wouldn't keep justifying myself if I were you. While I personally wouldn't agree with your FFH analysis I understand your rationale. I think at this point your response to the constant drumbeat against it should just be a nice hearty "F you and the horse you rode in on .... but best of luck!"

 

Kraven,

I agree with you! It was just a polite way to say: don’t ever expect a stock tip from me… and, if by chance you get one, DON’T act on it!!

The first reason I write on the board is to get to know very interesting people. But the second reason is to get to know very interesting people who disagree with me. It forces me to think harder and to always question my thesis. And that is priceless! ;)

I respect your thought so much, that I really need to know your bearish view on FFH. If you would briefly expose it, I would be very thankful!

And, by the way, my post was accurate, but incomplete… I should have written: I will never achieve Eric’s or Packer’s or Kraven’s returns. ;D ;D

 

Cheers!

 

Gio

 

[giofranchi]

>Gio, it's not about being as good or not as good as other board members. You know yourself and what works for you and what you are comfortable with and you've been successful with it.

 

Amen - who you partner with is up to you. You have been very successful so far as a Euro millionaire - ( and hopefully a gentleman of leisure ) and a most eligible bachelor to boot. A place many people will be happy to trade with.

 

Big thanks for sharing your thinking with the board.

 

cheers!

shalab

 

P.S: it is not clear to me if PW is selling his stock holdings because of liquidity issues or because of valuation concerns. Either way, one should consider PW family as the controlling stock holders.

 

Thank you very much, shalab!

It has been my pleasure to make your acquaintance and to meet other outstanding people on this wonderful board!

Hoping for many more decades of reasonings and discussions about investments and what’s truly important in life with all of you! :)

 

Cheers,

 

Gio

 

[giofranchi]

He could have held cash - to hold enough cash to hedge the downturn in the equity portfolio and to protect ratings, I imagine that would have required him to liquidate a large number of positions which has it's own complications with it. Hedging allows him to have exposure to his alpha - liquidating and holding cash doesn't do that. Now, in hindsight, you can argue that holding cash would have turned out better, but that's a different argument. Everything is clear in hindisght...

 

Well, I would also add that he is actually holding a lot of cash (30% of portfolio!). So, he has opted both to retain some exposure to his alpha and to get some of the stability cash provides. At least, this is how I see it. :)

 

Gio

 

[ourkid8]

Out of curiosity, why did Prem recently issue shares?

 

Tks,

S

He could have held cash - to hold enough cash to hedge the downturn in the equity portfolio and to protect ratings, I imagine that would have required him to liquidate a large number of positions which has it's own complications with it. Hedging allows him to have exposure to his alpha - liquidating and holding cash doesn't do that. Now, in hindsight, you can argue that holding cash would have turned out better, but that's a different argument. Everything is clear in hindisght...

 

Well, I would also add that he is actually holding a lot of cash (30% of portfolio!). So, he has opted both to retain some exposure to his alpha and to get some of the stability cash provides. At least, this is how I see it. :)

 

Gio

[Kraven]

I respect your thought so much, that I really need to know your bearish view on FFH. If you would briefly expose it, I would be very thankful!

 

I don't have a bearish view necessarily on FFH. I just think it's currently at best fairly valued and probably overvalued. I never buy something hoping for or expecting growth. Today I think it's not a bargain. That's it.

[StubbleJumper]

Out of curiosity, why did Prem recently issue shares?

 

Tks,

S

He could have held cash - to hold enough cash to hedge the downturn in the equity portfolio and to protect ratings, I imagine that would have required him to liquidate a large number of positions which has it's own complications with it. Hedging allows him to have exposure to his alpha - liquidating and holding cash doesn't do that. Now, in hindsight, you can argue that holding cash would have turned out better, but that's a different argument. Everything is clear in hindisght...

 

Well, I would also add that he is actually holding a lot of cash (30% of portfolio!). So, he has opted both to retain some exposure to his alpha and to get some of the stability cash provides. At least, this is how I see it. :)

 

Gio

 

 

As many of us observed during FFH's lean years, when you are dealing with a holding company that is an umbrella for several subsidiaries, sometimes cash is not located exactly where you need it.  When you look at the consolidated balance sheet, there might appear to be plenty of liquidity but the holdco might be a wee bit short. 

 

During the lean years, one of the uncertainties was the extent to which the regulators would permit FFH to dividend funds up from its subsidiaries to the holdco.  And then there was the black box of subsidiary capital adequacy, particularly for the run-off group.  Prem pulled a number of rabbits out of his hat to keep the ship afloat, including IPOs of ORH and NB, a little financial wizardry to allow him to consolidate ORH for income tax purposes, and a couple of timely private placements of FFH shares (notably to Sir John).

 

Having learned this lesson rather painfully, Prem is not allowing the holdco cash balance to be pressured.

 

SJ

[giofranchi]

Out of curiosity, why did Prem recently issue shares?

 

Tks,

S

He could have held cash - to hold enough cash to hedge the downturn in the equity portfolio and to protect ratings, I imagine that would have required him to liquidate a large number of positions which has it's own complications with it. Hedging allows him to have exposure to his alpha - liquidating and holding cash doesn't do that. Now, in hindsight, you can argue that holding cash would have turned out better, but that's a different argument. Everything is clear in hindisght...

 

Well, I would also add that he is actually holding a lot of cash (30% of portfolio!). So, he has opted both to retain some exposure to his alpha and to get some of the stability cash provides. At least, this is how I see it. :)

 

Gio

 

 

As many of us observed during FFH's lean years, when you are dealing with a holding company that is an umbrella for several subsidiaries, sometimes cash is not located exactly where you need it.  When you look at the consolidated balance sheet, there might appear to be plenty of liquidity but the holdco might be a wee bit short. 

 

During the lean years, one of the uncertainties was the extent to which the regulators would permit FFH to dividend funds up from its subsidiaries to the holdco.  And then there was the black box of subsidiary capital adequacy, particularly for the run-off group.  Prem pulled a number of rabbits out of his hat to keep the ship afloat, including IPOs of ORH and NB, a little financial wizardry to allow him to consolidate ORH for income tax purposes, and a couple of timely private placements of FFH shares (notably to Sir John).

 

Having learned this lesson rather painfully, Prem is not allowing the holdco cash balance to be pressured.

 

SJ

 

Thank you!!! :)

 

Gio

[giofranchi]

I respect your thought so much, that I really need to know your bearish view on FFH. If you would briefly expose it, I would be very thankful!

 

I don't have a bearish view necessarily on FFH. I just think it's currently at best fairly valued and probably overvalued. I never buy something hoping for or expecting growth. Today I think it's not a bargain. That's it.

 

Ok! Got it! Thank you, Kraven.

 

Cheers,

 

Gio

[Guest Dazel]

 

Gio,

 

I respect the great work you have put in on this board...some time ago...we had a conversation...my point was to forget about the noise...you pointed out the obvious pot holes. Your points are and were well versed and detailed...I thought a lot about them...Things could certainly have gone your way...Europe, China, deflation, inflation etc...

 

Fairfax is a Great company and Prem has the same view as you. They will eventually be right as will you...there is no "but".

Invest how you believe...I respect that a Great deal...it is not a race...and protection of capital is a big deal.

 

 

Dazel.

[giofranchi]

Fairfax is a Great company and Prem has the same view as you. They will eventually be right as will you...there is no "but".

Invest how you believe...I respect that a Great deal...it is not a race...and protection of capital is a big deal.

 

 

Dazel.

 

Dazel,

now I will print your words and hang them on the shelf in front of my desk!! ;D ;D ;D

 

Seriously, thank you!

I read with carefulness all posts of yours and I respect your ideas very much. :)

 

Cheers,

 

Gio

 

[james22]

Legendary investor Warren Buffett advises to be fearful when others are greedy, and be greedy when others are fearful. One way we can try to measure the level of fear in a given stock is through a technical analysis indicator called the Relative Strength Index, or RSI, which measures momentum on a scale of zero to 100. A stock is considered to be oversold if the RSI reading falls below 30.

 

In trading on Thursday, shares of Fairfax Financial Holdings, Ltd. (Toronto: FFH) entered into oversold territory, hitting an RSI reading of 29.5, after changing hands as low as $405.00 per share.

 

http://www.forbes.com/sites/dividendchannel/2013/12/12/fairfax-financial-holdings-enters-oversold-territory-ffh/