Is it time to sell FFH?

[indirect]

Should FFH be sold at 1.2X book value? or buy puts?

[ValueBuff]

I just sold out today.    :)

[ERICOPOLY]

I switched to ORH yesterday, and it's amazing... I nearly instantly had a change of heart regarding ORH buyout.  Premium!

 

I switched because:

1) backing out the goodwill from FFH balance sheet, the apples-to-apples comparison to ORH on a P/B basis is pretty big

2) takeover lottery ticket

3) financial markets -- will they pull back?  FFH more vulnerable.

4) underwriting profits

 

 

[gurjot]

i also sold some today.

[Partner24]

I'm not selling any single share. Fairfax is a long term holding and it's still far from being a fair price. They would have to increase the bid very significantly for me to consider any offer.

 

Cheers!

 

 

[Daphne]

I think we should buy Sanjay lunch today!!!

D

[Parsad]

No don't worry, I had a big waffle breakfast with a nice cup of joe this morning!  I'm kind of full right now.  ;D  Cheers!

[Crip1]

I do admit to being tempted to sell some, if only because I have faith that Mr. Market in the will offer up FFH at a price 20% or so less than it is right now. That said, I do not think that I'll sell here, though. If it gets ignificantly higher (US$400+) then I may think about it more seriously, but since it really is not fairly valued yet IMHO, I'll hold on to it.

 

-Crip

[Mikenhe]

I have shares in ORH and FFH and am very comfortable with holding both at the moment. I can see a time in the future that I would sell ORH – however FFH I fully intend to keep.

 

I don’t have much to put into stock but I do believe that the FFH shares will form the cornerstone of my (early?) retirement.  After everything I have read about FFH and first, second and third hand communication with FFH I cannot see any reason to sell those shares that I have and in fact – even at this price I am looking to purchase more.

 

 

Just wish I had more time and liquidity to research and utilize options  - that would have been a nice addition to my portfolio over the last year!

 

 

 

I also have the mental stumbling block of not being able to pull the trigger on selling shares.. I’m good at buying them but I get attached to them.. Need to work harder on that but my venture into other financial shares (Lehmans) has helped me along the path of selling at the right time (I failed to take profit in my shares in Lehman and paid the price there…

 

 

 

To conclude – no its not the right time to sell FFH.

 

[basl1]

this is a longterm holding, like berkshire.

 

[Santayana]

I sold first thing this morning because I had to liquidate some 401(k) holdings to complete an IRA rollover.    Right now I'm wishing I had waited a bit longer.  Who would have guessed we would get a 5% up day with the markets down almost 2%.

[ubuy2wron]

I sold some long term 350 leaps today against a long term deep in the money call position. I also purchased some ORH with the proceeds of the sale. I feel particularly smart today which usualy means I am about to lose some money.

[abyli]

I sold some FFH and put the proceeds into ORH. I still own the same company with a little higher percentage.

[Guest Broxburnboy]

Personally, I think we are going to see another shakeout in financial stocks and FFH is positioned to be a safer haven than most in just about any scenario.  The market is beginning to vote in this direction with its purchases. Could we eventually see a safe haven premium attached to the stock price?

At any rate, we may be seeing the beginning of the much anticipated long term upward trend in the stock price. I've been adding since early July and would add more here if I weren't tapped out.

[JAllen]

Can anyone shed any light on the natural disasters that seem to be popping up every which way in Asia?  They shouldn't have huge exposures but my guess is that there is some.

[smw397]

I sold some long term 350 leaps today against a long term deep in the money call position. I also purchased some ORH with the proceeds of the sale. I feel particularly smart today which usualy means I am about to lose some money.

 

There's my vote for best line of the day so far.  Definitely got an audible chuckle out of me.

 

I sold off a couple of small slivers at 347.50 and 350 only because I'm a bit leveraged and FFH as of this week was making up more than 100% of the total value in my taxable portfolio.  I used a bit of the cash it freed up to buy a Feb ORH 35 call -- my first ever option transaction!

 

Fortunately I still feel stupid, so I might make out OK on the deal.

[ShahKhezri]

Sold my Jan 11, 300's today, along with 4.5% of holdings. 

 

A couple of things changed yesterday:

 

1.  I currently don't hold any WEST or SNS, but the clarity yesterday re: merger, added a little more confidence in eventually taking a position.  I didn't want to be face with the issue of selling one and buying the other sometime down the road, I want to purchase and hold. 

 

and,

 

2.  I want to own a piece of Markel.  Sitting on the sidelines the last few years while I worked at Travelers, reading their AR's, CC's, etc. Also, by selling FFH shares with the plan of eventually purchasing some MKL, I still get that large FFH exposure (their second largest equity holding after Berkshire). 

 

I still have 85% of my portfolio in FFH, the other 15% in SHLD.  Selling additional FFH to purchase SNS and MKL wouldn't be that crazy.

 

 

[20ppy]

Not a time to sell for me, I will let the exponential power to work for me in the long run, rather than trying to do that job myself. I did purchase more ORH today as a way to add to my FFH holdings, hopefully.

[SharperDingaan]

 

A few things to keep in mind  ;)

 

1) All this discussion on ORH/acquisitions is bringing the momentum players in. A 5-10% 'premium' is pretty much automatic.

2) Whatever happens it'll be accretive, & it looks like its allready mostly a done deal. That 'new' higher BV will reduce the multiple.

3) The debt issue is sizeable, & funders like what they've been told. FFH will probably be perceived differently after its done.

4) If Katrina-2 suddenly hits, the deal becomes significantly cheaper. Leaving material change to boost capital if needed.   

 

With so many positives, it's pretty hard to not wait & see what happens.

 

SD

 

 

[Guest kawikaho]

Wow, I've been away for awhile and just noticed my large (almost 80% of my portfolio) FFH position is almost 350/share!!  WHAT?!  I wasn't surprised when it hit 300, but this is a bit too much.  I'm eager to pull the sell trigger on equity moves like this that go up like a rocket.  I don't think it's sustainable.  I look at ORH and it looks to be a better bargain vs. FFH, so I'm gonna have to liquidate FFH and roll it over to ORH on a pullback.  ORH at 48?  Wow, thanks guys.  I am up nearly 50% this year because of this!  I missed the bulk of the S&P move from March, and figured the only way to catch it was to buy FFH which didn't move forward with the market, even though a substantial portion of its float did. 

 

Much thanks to this board.  Perhaps the best investment of my life.

[20ppy]

Doesn't such a move have huge tax consequences? I've been holding half of my positiion since March because I can't afford to sell them any more due to taxes, I'd rather hold them. But I am talking about holdings that were opportunistic. FFH is my long term holding and I won't even touch it. Let's say that you sell FFH for a gain of $100 per share. and you now owe $30 to the IRS. And then you buy in ORH and due to buy out, you gain $30 per share there. Well you don't really gain much, do you? Maybe I totally missed something here.

 

 

[Guest kawikaho]

Well, no, not at all.  And, it somewhat depends on the order.  Let's look at scenario 1 (Sell FFH, buy ORH, buyout occurs, completely liquidate my portfolio, pay taxes this year): Let's say I had a portfolio of $100 before I bought FFH, and now I have $150 dollars worth of FFH.  I sell it and buy ORH.  The buyout occurs based on your assumption of a 62% premium ($30/share premium) to the $48/share I buy ORH at; I now have $243 dollars worth of ORH.  I completely liquidate my position due to the buyout, and now have to pay taxes.  Assuming a 30% capital gains tax, I now have $200.1, which is a total of 100% gain for the year.  

 

Let's look at scenario 2 (Sell FFH, buy ORH, pay taxes this year, buyout occurs next year, liquidate my portfolio, pay taxes next year again): Let's assume I have $150 worth of FFH.  I sell it, buy ORH.  Now I have $150 dollars worth of ORH.  Nothing happens with ORH.  End of the year, I liquidate enough to pay the capital gains taxes and I'm left with $135 of ORH.  The buyout occurs at stated premiums, and I now have $218.70.  I pay taxes on the $83.7 capital gains and I now have $193.59.

 

Let's neglect CAGR for the moment.  Out of both scenarios, the best case only saves me 6.4% in returns, so I still receive over 94% in gains even with paying the capital gains taxes.  I'm not losing out on anything.  Now, let's assume that ORH is given a 30% premium vs. the 62% (as I'm thinking this is what you meant and not $30/share premium to $48/share of ORH).  In the first scenario, I'm still up 66.5% after paying taxes.  In the second scenario, I'm still up 63.35%.  So, in either case, I'm not back to 50% as you're suggesting.

 

However, there is another scenario, and that is I keep FFH and it gives up quite a bit of its recent gains.  How much?  Well, in the past year, FFH has jumped huge in value due to people speculating on its CDS positions, only to have given most of it back.  My gut instinct is telling me that such a large move in a short period of time is unsustainable.  Statistically, I believe equities that gain 40% in value over a period of 2 weeks is due for a fall. I could be wrong here, but I think it's a better than 50% chance this will happen.  So, I'm risking 50% multiplied by whatever downside percentages could be in store for FFH and the market for an additional 6.4%.  It's just not good betting averages.   It could go up all the way to $400, but I have to use my gut instinct and basic market mechanics here alongside with my value instincts.  I know FFH is a great company with a great leader, and still trades at a relatively healthy book value, but I get nervous when the underlying equity increases substantially in value over a period of a couple weeks.  I'm sure the market has finally realized that FFH should have been where the S&P is now, and hopefully more, but I think the S&P rallied way too far and too fast to make that even sustainable.  I'd like to believe FFH will stay at current levels and go beyond, but, my past experiences has been telling me to pull the trigger and find better value.  I've been looking at ORH and FFH since March.  ORH and FFH has traded near tandem until recently, and now ORH has not risen as far and fast as FFH recently has.  From the time I looked at entering FFH and ORH, ORH was trading at $40/share and FFH at $250.  FFH is up 40% whereas ORH is only up 20%, and both have had similar increases in book value.  My value instinct is screaming ORH.

[ERICOPOLY]

Doesn't such a move have huge tax consequences? I've been holding half of my positiion since March because I can't afford to sell them any more due to taxes, I'd rather hold them. But I am talking about holdings that were opportunistic. FFH is my long term holding and I won't even touch it. Let's say that you sell FFH for a gain of $100 per share. and you now owe $30 to the IRS. And then you buy in ORH and due to buy out, you gain $30 per share there. Well you don't really gain much, do you? Maybe I totally missed something here.

 

Yes, there is a tax management strategy that I think you are missing out on.

 

Here is a short description of the strategy:

 

http://www.thestreet.com/story/769361/hedging-technique-opens-a-pandoras-box-of-tax-concerns.html

 

 

Basically, instead of selling your shares, you can sell short "against the box", or buy puts, or write deep-in-the-money calls.  You will be hedging your gains against a pullback in the market, but won't owe any tax on the position you are protecting as long as you close out your hedge within 30 days of the end of the tax year and then hold your position fully unhedged for the next 60 days.  It also resets your holding period (treated as if you bought the shares the day you close out your hedge I believe).

 

Read the constructive sale rules.

 

See "Constructive Sales of Appreciated Financial Positions"

 

http://www.irs.gov/publications/p550/ch04.html#en_US_publink100010318

 

 

So, if you borrow shares and sell them short, you have a bunch of cash to play with.  Use that cash to buy ORH or ORH calls.  Or instead you can write fairly deep in the money long dated calls on FFH (to protect from exercise, use a long date and don't go too deep) and use the cash from the premium to buy ORH calls.

 

 

 

 

[watsa_is_a_randian_hero]

Over the winter I sold 26 shares and used the proceeds to purchase 1 $200 strike Jan 11 call.  I just sold the Jan 11 call friday and was able to purchase 42 shares with the proceeds.  Not really "selling" per se, just reducing exposure to the options and locking it back in to shares (which don't expire).  For accepting the additional risk associated with the options, I was able to increase the 26 shares 62% to 42 shares, which at $350 I am still perfectly comfortable holding. 

 

For the most part any trading in FFH that I do is in my IRA's, my shares in my taxable account I just let sit there as a long term hold.

[20ppy]

Thanks Ericopoly for the valueable links, I need to study these strategies more but I sense thus far reading thru them I am not up to this level of play (too complicated for me?). Regardless, I definitely see the value of the strategies.