Grenville

I thought these words from Benjamin Graham in Intelligent Investor (1949) are applicable. He is speaking in regard to "Bargain Purchases" in chapter 1. “Since the selection of these issues naturally requires more than a little skill and good judgment, it is no business for the tyro or the superficial practitioner. It is desirable and perhaps necessary that such transactions be passed upon by a competent security analyst who is free from some of the besetting prejudices of his guild. But their distinctive feature, as we see it, is this: Once a competent analysis has been made and the salient facts presented, the intelligent investor will have the material needed to satisfy his own mind that the commitment is sound and attractive. He will not have to subordinate his own judgment to that of his advisers – which is often required of him in other types of security operations.”

Thanks for posting the reply.

When they raise that equity, could they potentially get premium pricing above current prices on the large block of shares they sell? Could they have already talked to interested parties about the price the interested parties are willing to pay for a decent chunk of shares?

Ya'll who did that option thing with ORH from a few weeks ago....wow :o Wherever the price ends up... Article from Bloomberg: http://www.bloomberg.com/apps/news?pid=20601087&sid=aQrsv4qWZCQ8

"Fairfax intends to issue new equity under its existing shelf prospectus, the proceeds of which would be used to fully fund the proposed acquisition of Odyssey Re shares. Following completion of the proposed acquisition of Odyssey Re and the proposed Fairfax new equity issuance, Fairfax expects to continue to have in excess of $1 billion in cash and marketable securities at the holding company level." Sounds good to me. Nice job guys!

Where do you find such block trade data, especially for after hour trades? Is it available on a basic site like yahoo or google, or do you need to use a brokerage service?

Great point! It's funny how psychologically we see what we want to see...Thank goodness for Charlie Munger.

Hey guys, Third Avenue's latest letter just released today. There is an interesting read on 363 sales related to bankruptcy proceedings in the Third Avenue Value section of the letter. http://www.thirdave.com/ta/documents/sl/shareholderletters-09Q3.pdf

"I want to say that at least half of all the pleasures that I have enjoyed in life have come from the world of the mind, from the things of beauty and culture in literature and in art. All this is offered to everybody, virtually free of charge, except for the interest to start and the relatively slight effort to appreciate the riches spread out before you... take that initial interest, if possible; make that continued effort. Once you have found it--the life of culture--never let it go." -Benjamin Graham at his 80th birthday. The above quote is from "Benjamin Graham Value Investing" by Janet Lowe. The book was mentioned in the interview and it was a very good read! Thanks Sardar Biglari, Sanjeev Parsad, and claphands22 for reposting the interview!

From the Southeastern/Longleaf Conference Call October 7, 2008: "So if we start with Dell. Dell is going to report earnings of something around $1.50 and we’ll talk in a second about the economic sensitivity of that but if they earned roughly a $1.50 of GAAP earnings per share that would equate to $2 of real free cash earnings because most people understand their negative working capital model and their whole kind of vaunted supply chain which creates a cash conversion cycle that is better than the reported profits, and that means around $2 of free cash flow on a stock that has $5 a share of net cash and no net debt. So at today’s close of around $14 a share, an investor is paying $9 for that $2 of free cash flow before we talk about whether that moves up or down with the economy so that is kind of an unbelievable four and half times after tax free cash flow multiple in very rough terms. What is further interesting about that is that is on a profit stream whose margins are depressed, not just down. So Dell had about five years of 8% average type operating income margins and now they’re bouncing around 5-6% so it is anything other than peak margins. And that is also against the back drop of management saying that they’ll get 2 billion of cost saves which would get you back to an 8% normal operating income. So on today’s trough margins without assuming that kind of improvement, we’re at this four and half times real PE if you will or P-to-FCF. And then if you look, you know if you look at what that is comprised of, this is a company that over ¾ of that free cash flow comes from businesses and government. So the consumer may retrench and there may be you know competitive issues with Apple who makes a fantastic machine and HP is coming back and all the headline stuff, but the bottom line is businesses and governments who make up the vast majority of sales and who are usually replacing rather than buying new machines are very unlikely to totally grind to a halt and make our free cash flow an irrelevant number. Looking at the product line, if you look at notebooks, the replacement value of those, the dollar profit pool on those compared to desktops and you look at servers and stores which are huge growth areas and very much related to internet usage. All of those things are over 70% of their profits. So the desktop which seems vulnerable is a very small part of this whole puzzle. And so this map which is not difficult to get at or to see is fully appreciated by the company and by Michael Dell himself. So Michael has spent $200 million of his own money over the last six months, paying in the low 20’s to buy personal stock, even though he already has billions of ownership which is very telling and the company likewise has spent $1.4 billion of their cash in the last quarter repurchasing their stock. The $1.4 billion is just an amazing number because if you annualize that, that is over 20% of today’s market cap that they are on pace buying their shares in. And so you look at this and you say, is the panic right and this stock really should be priced at 14 or is Michael and the company and any kind of rational measure of net present value of free cash flows right and $14 is just nothing but an opportunity. We obviously vote the latter and continue to add as they do. " I have attached the transcript.

Nice points Jegenolf! It seems like there are a lot of subtleties to the insurance business that aren't entirely apparent to the untrained observer. I'll list some of the points brought up in the previous posts so we're all on the same page with regards to facts. 1. CR (combined ratio) is not a clean cut set in stone number. Its based on assumptions for reserves for future payouts on losses. Hard to compare CRs without looking at how actual losses turn out. 2. Different companies account for the present value of their future reserves. Fairfax doesn't discount their future reserves back to the present day. They just use actual losses they expect to pay out and don't discount them with any interest rate. This seems like the most conservative approach. How would one pick the discount rate for a present value calculation? 3. Better to over reserve than under reserve. The value of tax deferral is extra float to invest until favorable reserve development. Better to surprise positively than negatively. I would imagine there is a limitation set on how much one can over reserve. 4. CR is one piece of the puzzle, the investment returns needs to be factored in along with how much of capacity is being used. Some companies hedge out currency risk through the investments 5. Shareholder equity along with CR maybe a better way to compare business performance between different insurers Feel free to question my assumptions here. I would prefer that we all get the fundamental facts straight to make the best conclusions here! Great insight, much appreciated!

At least there is a mix of different police officers getting served...unfortunately you don't get the benefit of hindsight when making these decisions. Sardar has his plate full!

In the process of reading through Andrew Cuomo's Bank Bonus Report and I found this chart very interesting. It's nice to see the distinction between banks and relative compensation levels. Here is a link to the report: http://www.oag.state.ny.us/media_center/2009/july/july30a_09.html The chart is attached below.

I did some searching and it looks like the article comes from a book written by Peter Drucker. The book has great reviews on Amazon so I decided to buy it. Thanks for posting the article! http://www.amazon.com/Management-Challenges-Century-Peter-Drucker/dp/0887309992/ref=ed_oe_p

works now for me, didn't before!

44% Cash/Govt Bonds 14% ORH-A 13% FFH 9% BRK-B 5% TAVFX 4% LLPFX 4% TAREX 2% ORH 1% SHLD mutual funds are from the days before finding this message board and its broad range of information and insight

Jamie Dimon, the great Statesman! I always enjoy his speeches, ethics and straight forward leadership. I only wish more corporate CEO's were like him, it would make life a lot simpler and more enjoyable.

Very nice speech! Shared it with my friends. 8)

Knowing what you know, are you guys comfortable with the large compensation packages and the inherent incentives they reinforce in the employees going forward?

Hey guys, I wanted to get people's thoughts on the huge compensation numbers set aside for employees of Goldman Sachs. In the recent quarter compensation and benefits expenses (including salaries, estimated year-end discretionary compensation, amortization of equity awards and other items such as payroll taxes, severance costs and benefits) were 6.65 billion. In Q1 this number was 4.71 billion. The total for 2009 so far is 11.36 billion with two quarters left in the year! I understand Goldman's franchise has gotten much stronger with the weakening of many competitors but in light of the substantial amount of government support both indirect and direct, the compensation numbers don't sit well with my gut. This all is more of a concern for me through my ownership of Goldman through Berkshire. I know high compensation numbers mean good results at Goldman that benefit Berkshire's investment. Although, in my limited understanding it seems like Goldman was on the brink of failure much the same way other firms were and they were saved by the AIG bailout and all the government support. Given the substantial risks the employees put Goldman Sachs franchise in, the compensation numbers seem like the wrong incentive. Any thoughts would be appreciated!

For what it's worth Hoisington is still sticking to deflation. There new commentary for Q2 is out: http://www.hoisingtonmgt.com/pdf/HIM2009Q2NP.pdf

It might be from a lack of understanding on my part, but doesn't the fact that he has material insider knowledge prevent him from trading in the shares? Book value can move substantially given the assets and significant trading activity in their portfolio. One way around the insider knowledge would be an automatic stock purchase plan of some sort. Just curious!

Thank you for posting the report!

http://www.cnbc.com/id/31128840 Interesting comment "If I were clairvoyant and knew we were going to have a sell-off of this magnitude, I would've been all in cash, but I'm not," said Van Hoisington, whose flagship Wasatch-Hoisington U.S. Treasury Fund is down more than 20 percent.

Awesome, thanks for posting! Quite in depth!