Parsad

It's the era of the Carnegies, Rockerfellers, Astors and Vanderbuilts, all over again! Thank you to Bill Gates and Warren Buffett (including the Late Susan Buffett), on how capitalism can truly change the world and emancipate our humanity. Cheers! http://www.theglobeandmail.com/report-on-business/billionaires-pledge-billions-to-charity/article1661467/

New Century, the first sub-prime related class action lawsuit, has settled with $125M in judgements against the 13 directors and auditor KPMG. Cheers! http://www.dandodiary.com/2010/08/articles/securities-litigation/firstfiled-subprime-securities-suit-settles-for-125-million/

Article on BYD's slow start to 2010. Cheers! http://finance.yahoo.com/news/Berkshire-Favorite-BYD-indie-869960101.html?x=0&.v=1

Parsad, Have companies really deleveraged or is it pretend and extend? From Zero hedge: It is not surprising that nearly 50% of cash was generated from operating cash flow ($1 trillion) while $600 billion came from new debt issuance (the rest from asset disposition). Yet despite consistent claims that companies have massive deleveraged, just $635 billion of debt was repaid, meaning only $35 billion of debt was actually retired! Hi Sea Island, Most of the debt that businesses operate with currently can be serviced in this environment with little difficulty from their cash flows, and many businesses have huge cash piles that would allow them to meet their covenants if things become worse. The main form of deleveraging I'm referring to is off-balance sheet stuff...credit derivatives, etc. While you have other derivatives risk in the system, most of the subprime stuff is gone relative to the amount of equity at risk. Also, extending debt maturities out is a form of deleveraging, since the company can continue to operate without incumberances...Fairfax did this for seven years and it worked like a charm! Cheers!

Generally speaking the stocks are not as cheap as they were in March 09 but then they are not as expensive as in 2003 or as in 2007. Volatility is a friend of the value investor and some people will make a killing in this environment. That is correct Shalab! Also, I think the other distinguishing character today, compared to 2007 or even early 2009, is that alot of businesses have deleveraged. Governments have piled on debt, and the macroeconomic picture could make stocks volatile, but most companies in North America are in far better shape today. If the credit markets seized, leveraged financial institutions would continue to be in a bit of a bind, but many are still carrying large hoardes of cash. Most non-financial businesses already have large cash piles, with reduced levels of debt, and would probably make out quite well in another credit crunch. Private equity funds and hedge funds that survived, also are sitting on huge amounts of cash due to their macroeconomic views, thus they will be able to meet redemptions or put capital to work. In general, equities don't hold the same sort of risk we saw in 2008 and 2009. Volatile yes, but permanent risk to long-term capital...reduced considerably. Cheers!

An addendum to my comment on anchoring...a perfect example, which is quite amusing to me: ...Fairfax Financial Chairman Prem Watsa in our interview with him in the new issue of Value Investor Insight. Few investors navigated the financial crisis more successfully than Watsa, who describes for us not only his thought process and strategy in preparing for the crisis, but also how he's positioning his portfolio today for what he considers a still-precarious future. It's a perfect example of what we aspire to deliver in every issue of VII: timely new ideas from the best investors in the business, but also timeless wisdom that's of great value in any market environment. A few years before, they were shorting the hell out of Prem and Fairfax. Now they're suggesting positioning their portfolio based on Fairfax's behavior...please excuse the jagged little knife blade I stuck in your back a few years ago, but would you care to do an interview with us? ;D That's probably why Prem's such a great leader...he forgives those that trespass against him. Cheers!

Well, as we learned in March of 09'. When deflation, or the perception of large deflation, seemed likely all risk assets correlated to 1 (even the cheap ones), even less risky corporate bonds. Even cheap companies (low p/b, p/e) performed very poor in the US and Japan during their respective depressions (if they survived at all), and there was no opportunity to sell dear while the markets fell over 50%. Survival was the game, and leverage was the enemy. While I definitely echo your comments on Fairfax's situation with their leverage and necessity to maintain good ratings for policy writings, it may not be such a bad thing to give a large amount of thought to some of the macro factors in play. I recommend that board members go back and read various old posts from February, March and April of 2009. There's one terrific post on there about a Bill Gross article where he's saying that "Equities are Dead!" Well, we know how wrong that was now, don't we. Gross was taking a macro view on things. There's also a terrific article by Jeremy Grantham within a couple of weeks of that article saying that "Don't try and time the bottom." And how right was Grantham? Investors should never become anchored to an idea or view. It's tough...damn, I find it hard sometimes...but that's the challenge. Buy cheap, with a margin of safety, and into things you are comfortable holding for years. If markets go down, you sell the more expensive ideas and buy anything of equal quality that is cheaper. On the way back up, you will make your money when the market becomes rational again. Understand that I am not saying that you should be fully invested. In fact, everyone should hold some cash. But don't let noise deter you from applying the investing intellectual framework that has always worked. Cheers

The one thing I've said in the past, and continue to say now, is that Prem's situation is very different than anyone else's on this board. Fairfax's ability to write insurance contracts is based on the amount of statuatory capital they have. If you have significant movements in mark-to-market accounting, Fairfax's credit rating could fall to the point where they can no longer write property casualty policies. They have debt and use 4-1 asset to equity leverage. A 25% drop in Fairfax's portolio could be very detrimental to the company. Thus Fairfax has to have more hedges in place than the average investor who operates with no margin or leverage. Buy cheap, sell dear...bullish and bearish sentiments be damned! Cheers!

Buffett never tips his hand...at all! While we all appreciate the frankness of Munger, Buffett never lets you know his cards, and again, I find it difficult to believe Buffett will annoint one investment successor when he is gone (Lou Simpson was the exception, and the results are extraordinary). Berkshire will have no less than two CIO's and I would bet at least four will be on the team. This guy worries about the most unlikely scenarios and it won't matter if Munger is really high on Lu. Cheers!

One thing to consider is that Buffett very clearly attributed the BYD purchase to Munger, and he hasn't professed any particular insight into the company. If BYD truly explains most of Lu's outperformance, then circumstances have changed, or we should view the article with some skepticism. It could very well be all of the above. At this year's AGM, it was really Munger who made the reference to "a manager who returned over 200% last year". Buffett did not say anything. I would be very surprised, in fact it would be completely contradictory to everything Buffett has said historically about naming a successor for the CEO or CIO position before his demise, if Buffett entertained the thought in front of the public that Lu would be one of the four CIO's. He's always made it a point of not annointing anyone until the board ultimately has to make a decision. We've heard praise for various CEO's and investment managers, but never a direct comment like Munger made in that article about it being a forgone conclusion. Cheers!

different strokes for different folks, i guess. Well, it does matter to a certain extent. If Li Lu likes to make big bets like Munger, that could pose a problem for an insurance company whose level of statuatory capital could fluctuate wildly due to a bold bet and mark-to-market accounting. For Berkshire, not unlike Buffett's decision to invest in derivatives, that could mean the difference between an "AAA-rating" and an "AA-rating"...or worse! li lu's style is more like mungers, & to a lesser but still significant extent like webs. ofcourse, web does trade, its just that his biggest gains have come from a few big bets, combined with long term compounding of those bets. At the end of the day, money is money and your return is your return. But batting average becomes important over 20, 30, 40+ years. Especially if the investment capital you are looking after is inter-generational, as Buffett intends Berkshire to be. According to the article, Lu's fund originally had a total of $150M in investment assets. He put $40M into BYD, which would be worth $400M today. The fund's value today is $600M, meaning that the original non-BYD capital ($150M-$40M = $110M) is now worth ($600M-$400M = $200M). That's a return of 81.8% over six years (mid-2004 to mid-2010), or 10.5% annualized on non-BYD assets. Again, the return is the return, but I would prefer a longer track record for someone who is going to handle billions and billions at Berkshire. Cheers!

I don't know about Lu's actual portfolio results too much. I know he hit it big with BYD and Munger was very specific about his 200% return in 2009, but I'm just wondering what Lu's results were like in his selections. Lou Simpson's portfolio is somewhat transparent with the 13-HR filings Berkshire has to make, and the size of the investments Simpson makes, so you can see that Simpson has a high batting average rather than just a few homeruns. In Lu's case, does anyone know if his returns are also due to a high batting average, or are there a few extraordinary homeruns in there? I'm a fan of the former style, not the latter. I think a high batting average shows more consistency in the intellectual framework behind the results, rather than a bunch of sporadic grandslams. Cheers!

Does Chou invest similarly to Hamblin-Watsa? Do they keep in communication? Is this as close as we can get to having HW run our money? Yes to all! Your only other option is through Fairfax shares directly, especially now that Northbridge and Odyssey are no longer public companies. There's a reason why Francis is included in our panel of investment managers at our annual Fairfax Financial Shareholders Dinner, and it ain't because he's cute and cuddly. Although most of the women at Fairfax would probably say he is! ;D It's because he was an integral part of the HW team for many years, and he probably knows how Prem thinks as well as anyone. I would put Roger Lace, Brian Bradstreet, Chandran Ratnaswami, Francis Burke and Tony Hamblin in there as well. That crew has all worked together since well before day one. I think Paul Rivett and Sam Mitchell are right in there too now in such a short period of time...both have alot of responsibilities at Fairfax...and are absolutely integral. It's one hell of team! Cheers!

Good! He deserves the award. He, along with all of the employees, executives, friends and associates that worked damn hard on turning around the company over that crucial six month period! It all started with his vision and determination, which lead to them saving a burger icon, as well as thousands of jobs and all of that shareholder value. I'm happy to be the first to applaud him for all the things he did do right. I just wish he had better counsel on the name change and compensation plan. Cheers!

For U.S. Fairfax shareholders, who always wished to invest in a mutual fund run by a manager with Hamblin-Watsa pedigree, you now can! The Chou America Funds, managed by my friend Francis Chou, have launched and are now available to U.S. residents. About time they heard about Francis down there! ;D Cheers! http://chouamerica.com/index.html

Hi T-bone, I don't think anyone disagrees with your assessment, and most people think Fairfax is still cheap. But whether we like it or not, its results will be ultimately tied to insurance premium rates and investment opportunities. We are not in a hard market...no where near a hard market! It could be a couple of years before insurance premiums get better. In that respect, there may be other businesses in the short-term that may have better results simply because they are not tied to the insurance industry. But yes, when the insurance market turns, Fairfax will be better positioned than almost anyone else, and its price today will look very cheap. Cheers!

Something I've been concerned about for several years is the bad loans Chinese banks were writing. Apparently, this concern is now something more real. Cheers! http://www.bloomberg.com/news/2010-07-26/china-banks-said-to-see-risks-in-23-of-1-1-trillion-public-project-loans.html

Hi Hugh, Alot of times new investment managers ask me what is the single best piece of advice I can give when starting a fund, and I always say: Use good service providers! In our fund, our broker costs a little more but if I'm trying to accumulate a position, I put in an order for how many shares I want and at what limit price. They then work the trade, moving the bid up and down as the ask moves, staying below my limit. It makes it much easier for me when managing our funds. For the average investor, use limits, and for thinly traded stocks you probably should use all or none, because you could get charged the full transaction cost but only get 40 or 50 shares in the day. But the best piece of advice is find a good broker where you get plenty of value for the cost of service...discount brokerages aren't always the best way to go, since your service providers should be attuned to your needs. Cheers!

I thought that the reading would somehow get better this week, but it is just the opposite. There is nothing perfect out there, but this index has never failed matching a recession since the early 70's at such declining rate. I think these types of statistical tools are almost useless. Common sense dictates that when rates are near zero or at least extremely low, that generally is a good thing for corporations as their cost of capital is also lower. Take a look at spreads for financial institutions...they are fantastic still. You also have many businesses that have already reduced their debt loads, now they can finance debt that is coming due at very good rates. While a recession may be on the horizon, I'm not sure that should dictate how you invest. We should always buy cheap and sell dear...simple! Forget the statistics and technical analysis. Cheers!

They've got a pretty nice cash pile in Jefferies too! All depends what they find and where they want to deploy it. Although the cash from GM doesn't arrive till sometime in the forth quarter. Cheers!

A friend of mine who is a businessman said of Biglari - he will be very confident in his talk and won't mind if he ends up in jail. He said this before the name change and the compensation package came out. While I don't like what Sardar and the board did, I think your friend's opinion may be a bit extreme. Cheers!

The couple who provided information to the SEC against Pequot received $1M in reward. Cheers! http://www.bloomberg.com/news/2010-07-23/sec-pays-1-million-for-information-given-in-pequot-insider-trading-case.html

That was pretty damn funny Dorsia! ;D At least so far, Sardar's gains will be completely in line with shareholders. It's just that he's changing the original agreement. If shareholders came into this knowing what they were now getting, that would be fine, but the ethics of changing mid-stream is what irks me. Cheers!

Don't you like working, Bronco? If I wasn't working, what the hell would I be doing...even if I was 65? Oh, I guess I would be responding to posts like I am! ;D Frankly, I think working is better for your long-term health as well. Look at Rose Blumkin or Buffett. Cheers!

Magna's shareholders approved the buyout. How stupid are these shareholders? Cheers! http://www.theglobeandmail.com/globe-investor/magna-shareholders-approve-stronach-buyout/article1649493/