Parsad

I don't think its a good idea to use a single year as meaningful of anything. I couldn't care less that my portfolio was down in a single year, especially when everyone else's portfolio did the same thing. A good long-term track record can suffer a couple of years of business depression-like results as long as you beat par and know how to do it. For example, I read somewhere that something like 8 out of 10 years the S&P has had a positive return and 2/10 it has had a negative (sometimes very negative) return. The best thing to do is to go through it and forget about timing yourself in and out of cash. Volatility is no big deal, it is highly welcome, otherwise how to get the great deals? Again, that is true the 49 years out of 50, but unfortunately that 50th year does eventually come around. Multiple successes multiplied by zero is still zero. How many hedge funds perished last year...25-30%? And that hedge fund number would have more than doubled if they couldn't lock up the capital. How many value fund managers got killed last year...85-90%? How many pension funds got mangled last year...65-75%? The industry is primed to always stay fully invested. It's the greatest statistical Trojan Horse in the financial world! Always stay fully-invested...buy, hold & prosper...missing the 30 best days reduces your results by 50%...etc. This is what statistics tell us, so the investment managers fully buy into it, and in turn they feed their clients the same information. Don't get me wrong, it is completely true but it depends on the context. If you are a 50 year old person who planned on retiring at 65, and you're portfolio which was heavily invested in the Nasdaq (which drops from 5000 to 1400) collapses, and ten years later it isn't half way back up to its peak, then "staying fully invested" or "buy & hold" was probably the dumbest idea anyone could have given you. Statistics have value...but you can't view them in a vacuum, otherwise the data becomes meaningless. Cheers!

I'm one of those guys that doesn't like cheese on my burger or hotdog. But I still wouldn't mind getting my hands on one of those double steakburgers. Everytime I open the SNS website, and that big-ass burger and fries appears on my screen, I ask myself...when, my God, when! ;D Cheers!

Don't use too much leverage and invest in the right businesses/managements - other than that, I'd ignore the odds of small events with big consequences, there isn't much else you can do about it. Some people hedge/insurance but I don't think that's very useful because over time, the bias is towards recovery so the insurance is wasted, you can get "pseudo-insurance" by just not buying more than you can chew. Well that works most of the time, but anyone who stuck to just that last year got burned. We did well because we weren't afraid to hold cash, but the rest of the industry is trained to always stay fully invested. Even if you chose the right companies and didn't use leverage during the 30's, you still got a severe taste of volatility. My opinion is that investors should stick to what they know. Wait for fat pitches, buy good businesses at a margin of safety, and don't be afraid to hold cash until you find something. That theory doesn't change in good markets, bad markets, deflationary markets, inflationary markets, etc. You don't buy gold, you don't use exotic hedges and you do only what you understand...but macro still has an intangible effect. Sometimes more and sometimes less, but it has an impact on your future discounted cash flows. Cheers!

Question: Why does everyone use the past or statistics to try to predict the future? Is there any reason to believe that data has any information about current macroeconomic events? History doesn't necessarily repeat, but it often does rhyme. There was no reason the tech bubble could not continue well past 5,000 on the Nasdaq in March of 2000, but history tells us that such valuations were historically a tipping point for such a correction. Statistics tell us nothing about what will happen today, but it gives us a pause for concern regarding the current deleveraging based on the few corollaries we have to compare. Another example could be: How often does one actually spill their coffee on themselves while driving? Not often. But history tells us that it does happen from time to time, and the consequences are not enjoyable. The question is, if the odds of such an event are small, how do you protect yourself from that rare possibility of such devastating effect? As Buffett says, a long string of successes can be wiped out by one simple error in judgement. Cheers!

Mortgage delinquencies have dropped in sub-prime mortgages, but the number has risen dramatically in prime mortgages which make up the bulk of outstanding mortgaged properties. Cheers! http://money.cnn.com/2009/08/20/real_estate/Mortgage_delinquenciies_keep_rising/?postversion=2009082017

I'm seeing more and more of these little articles discussing Steak'n Shake's great tasting meals at a great price. http://www.examiner.com/x-15145-Orlando-Cheap-Eats-Examiner~y2009m8d19-Steak-N-Shake-is-famous-for-steakburgersand-milkshakesand-coupons Also from the regular surveys I get from our fund partners, it seems as though things are improving at locations that had gotten a bad rap just several months ago. Cheers!

As I mentioned in a previous post regarding my disbelief around Usain Bolt's feats, some blogger has done a terrific job mapping the progression of the 100m mark. Thanks David for sending it! As you can see, Bolt's mark is quite the outlier over the last 100 years. I would suspect that many of the marks set in the last 15-20 years were done with some sort of enhancement, as the numbers were dropping so fast that we should be running sub-eight seconds by the end of the next decade! Cheers! http://scienceblogs.com/startswithabang/2009/08/the_math_of_the_fastest_human.php?utm_source=nytwidget

I think that coming out of any recession, people always feel like things will never be as good or spending won't be back. The truth is that we won't know how good of a recovery we'll have without hindsight. That's true, but we haven't had a correction in real estate prices like we've seen since the Depression. When you have non real-estate asset bubbles (equities, commodities, bonds, etc), the deleveraging has a wealth effect but not nearly as dramatic as a shift in real estate valuations. For some reason, a depreciated value of a home has a different psychological effect than a diminished IRA account. We saw this to a lesser degree in the early 80's, but the correction this time in prices is nearly double. People changed after that period. Many weren't the same as they lost what they had spent the last couple of decades building. And this time the extent of the damage is significantly worse outside of the United States, excluding parts of Asia and South America. Things will get better, but there is no easy way to get there...not using stimuli, unique financing arrangements, interest rate movements or regulatory augmentation. Those things will shorten the time needed to deleverage, but they won't eliminate it. Cheers!

I think we are in the limbo area. You've got managers who are all in, but if you look at CNBC, they are telling you how to prepare for the coming correction. You don't get the correction until the consensus is decidedly on the same page. It may go on longer before people come back to reality...that this isn't going to be a quick recovery. While the worst is over, there is miles (years) to go before we clean out the books and restore the balance sheets. The psychology of spending has changed. People just can't do it right now, because there continue to be corporate restructurings and increases in efficiencies. Business will get better, but it won't be robust. Cheers!

For those interested in all sorts of businesses, I thought this expansive Bloomberg article on Macau and Stanley Ho would be interesting. I don't gamble, but I certainly enjoy the economic aspects of the business, without coming to any specific allusion on whether it is moral or not. I'm always fascinated by how different people approach the same business, and this story does a pretty good job of discussing Ho, as well as other casino magnates in the U.S. and Asia. Cheers! http://www.bloomberg.com/apps/news?pid=20601109&sid=atoSngbDQRzI

GEICO is adding more money and jobs to their business in Western New York. A market they were completely out of several years ago. Cheers! http://www.tradingmarkets.com/.site/news/Stock%20News/2487776/

As I mentioned in an earlier post a couple of weeks ago, one of our partners when renewing his commercial leases had to offer across the board 20% reductions in rent to his leasees. Everyone he knew also had to do the same. In the article below, it seems as though commercial real estate prices have fallen 27% year over year, and 36% from their peak. Unlike residential real estate, I suspect the correction in commerical prices has not stabilized and will be significantly greater from the peak. Cheers! http://www.bloomberg.com/apps/news?pid=20601087&sid=aQ9I9q6Z0DaM

No sorry guys, I actually forgot all about it. I don't particularly get concerned about those things, as this company has always taken care of things. But they read the board and like to keep up with shareholder concerns, so I'm pretty sure they addressed it after some of your posts. Believe it or not, Fairfax actually runs without any input from me...really, it's true! ;D That Prem guy and all his staff actually do get around to getting some things done, instead of me cracking the whip time and again. Cheers!

SEC put out a warning on the use of leveraged ETF's. Cheers! http://www.cnbc.com/id/32463851

Excellent article from FastCompany on the three Buffett children and their foundations funded by $1B donations from their father. Cheers! http://www.fastcompany.com/magazine/138/daddy-givebucks.html?page=0%2C0

Great notes Ragnar! Thanks very much. Cheers!

Hi Cardboard, I didn't mean to imply anything with the junior mining comment. Just that refilings are very common, and occur with some frequency from small-caps to large-caps. Most companies naturally prefer not to have refilings, but mistakes do happen from time to time, and a refiling is necessary. The controls Fairfax put in place were primarily to do with accounting controls...intercompany transfers, etc. I don't believe the controls were particularly directed at things like a simple 13-F filing. Cheers!

Cardboard, we work with junior mining companies at Quantum, and you wouldn't believe how many times things are refiled...including stuff that the auditors have signed off on. It looks like a simple mistake in accounting. I don't know what the reasons are for the debt issued, and it still may have something to do with ORH, but the 13-F filing seems to just have been an oversight. They filed the corrected 13-F after noticing the problem from all the different shareholders inquiring about it. Cheers!

Looks like you guys caught Fairfax's eye with your discussion on the 13-F filing and missing ORH holdings. They've refiled the correct 13-F. Cheers! http://www.sec.gov/Archives/edgar/data/915191/000095012309035828/o56681e13fvhrza.txt

Yes, that very well could be the process and reasoning. I'm sure we'll find out over time. Cheers!

Thanks very much David! I think we all are hearing the right things coming out of this meeting. Cheers!

Yes, Eric is correct. I'm not saying that Simons is a fraud. Just that those numbers are juiced from something. It's just not on proprietary trading snatching a penny here or a penny there by finding mispriced trades. Like Bolt...who ran a 9.58...I really have a hard time believing he's doing that completely unenhanced. When five Jamaican runners all test positive, it becomes more and more difficult to believe that this guy is doing it all on his God-given gifts. Simons is notorious for keeping a lid on exactly how they make money. He sued two former employees who left the firm because they breached their non-compete clause. Leverage, derivatives, I don't know...but the risk/reward ratio there is skewed and I'm cautious in touting his results. There are lies, damn lies and then there's statistics. Numbers don't always tell the whole story. Cheers!

Can you expand on this statement? No need to expand. The feeling is the same I had when I saw Usain Bolt run a 9.58 today and pull up near the finish. Cheers!

Thanks very much for the notes Zach! Good stuff. Cheers!

Most of us here that have owned Fairfax shares for many years and remember the naked short attacks in past years, have noticed how public perception of naked short-selling has changed from those days. Deepcapture has a nice little article showing where we were and where we are now in the battle against manipulation of market prices by naked short-selling. Cheers! http://www.deepcapture.com/the-pendulum-swings/