Mungerville

I could sell the $10 extrinsic value for the relatively larger at-the-money premium and roll it along back to the $12 strike. I therefore have benefitted from changes in extrinsic value even if I gained no intrinsic value. Eric, You are starting at the most expensive spot on the spectrum of extrinsic value for a given maturity. So odds are the stock moves and doesn't stay at that exact spot and so you feel good because you roll with a longer maturity at cheaper annual extrinsic value cost. But are you sure your starting spot is rational? I guess the alternative is buying a somewhat out-of-the-money put (because in-the-money gets you into the warrant issue where you trade undervaluation for cheaper non-recourse financing). In this case, extrinsic costs are lower initially, however the stock could move up or down in the short term - let's say 50/50 chance so there is probably 50% odds in the short-term that were you to roll, it would cost you more extrinsic value (and 50% odds it would cost you less). And one would think over say 15 months the stock would probably have greater chance of moving up rather than down if the security selection made sense. In any case, I just don't see any advantage to starting where you start on the spectrum - it may even be suboptimal (I don't know) - but there is value in rolling to longer maturities when the stock moves away from the strike. Would you agree with these two points?

Its pretty simple, they can't take on too much more debt relative to equity. So cash acquisitions are tough in this context and they are limited to spending 1-2 years of earnings on an acquisitions going forward - at least in terms of using cash. So whether they take a breather for another couple quarters or not does not change the strategy one iota. All it does is it permits them to not fuck around with small acquisitions, save some cash, and buy something a bit bigger. Also, at the same time, earnings become more transparent, so their currency in the form of their own common stock goes up hopefully providing them with another alternative for financing a portion of the bigger deal. So they could do a deal that is 4 times adjusted earnings (2x with cash and 2x with stock in terms of the mix). There is no change in strategy. The change is just "lets not fuck around with small acquisitions (eg, $2 billion) despite the constraint that we have lots of debt at this point and so its not as easy sailing as the last few years" and do something of consequence (eg, $8-10 billion) because both small and large take a minimum base level of management time and focus. Only short-term Wall Street analysts call this a change in strategy - its more like, lets have x-mas and New Years, report Q1 and Q2 clean (for a change) and maybe Q3 and Q4, AND then we will go do a material acquisition! If you want to call that a change in strategy, kiss my ass. Its a tactical change that is necessary currently give the debt on the balance sheet - that's it. BTW - This is Original Mungerville ( I found my old moniker "Mungerville" on a computer I rarely use in the house!)

Eric, Watching you and ni-co go at it in the other thread, I was going to interject, and express the above trade-off. The way you have expressed the trade-off demonstrates your pristine clarity of thought on this particular subject. Its absolutely the trade-off being discussed. And, yes, its stupid to choose one option and smart to choose the other. Also your analogy to Buffet's bet is bang on. He sold the same put you are arguing people should not buy. Cheers. BTW, this is Original Mungerville (It looks like I found my old moniker somehow using a computer in the house I never use? Anyway)

Thanks Jacko, much appreciated. One question: Is it your take that where I reside personally is meaningless if I set up the general partner as a corporation in any province of my choice?

This reminds me a lot of Fairfax 12 years ago: GAAP earnings and combined ratio not representative of underlying earnings and run-rate combined ratio we see today, business model flawed, lots of noise from shorts (in this case, lots of noise from Allergan), lawsuits, etc etc This is why I thought the stock would likely get cheaper - maybe it was dumb luck or maybe it was experience, or maybe it was some combination of the two. If the stock market tanks now, VRX could get even cheaper. Lets hope it does.

Yes Ericopoly, I am using deep in-the-money Russel 2000 puts again as the small caps are even more over-valued relative to the S&P. Its like deja vue all over again. The only tweak I have now relative to pre-financial crisis is I own gold and out of the money long-term calls on silver.

I bought but haven't done the calculus yet. I think I am looking at a P/E of 10 buying today for the P and 18 months out for the E. If you add 1) some underwriting profit (you have to given GEICO and some others) to Buffet's normalized earnings and then 2) add look-through earnings net of dividends of the equity portfolio (KO, WFC, AXP, etc..) as the divs are in normalized earnings and then 3) add that one $15B acquisition in the next 18 months will occur increasing earnings by a 10 percent yield (net of say the 2 percent being earned on bonds presently with the cash) so 8 percent net or roughly another $1 billion... you have to get to around 20 billion in "adjusted" normalized earnings power or a P/E of 10 or damn close. Like I said I have to look at it more closely - am being very lazy. Irrespective, regardless of whether its 10, 11, or whatever times earnings, BRK is better value than the stock market which carries a higher multiple. As such a long-term BRK position and short the stock market should outperform cash in your portfolio (note: stock market is high, only times it has been higher in the last 120 years relative to GDP or long-term earnings, etc. is, in order of bubbliness 1) 1998-2007, 2) 1929 and 3) sometime in the 60s when Buffet closed his partnership. Good to stay hedged.

Bronco, Are you sure you are projecting forward or do you have your directions mixed up? Do you think they are going to have 1.7 billion or whatever in cat losses every quarter on a forward basis?

I'm with you broxburnboy... precious metals - mainly silver - have been my main bet ever since I was forced to sell my ORH common to Watsa for below intrinsic value.

Did I mention that I'm in on this one, so when I finally make money on it (maybe sometime after the upcoming market crash), it will be Dazel's fault.

Looks like just a standard yearly buyback program announcement. Doesn't seem to necessarily mean they will buy anything back this year only that now that they got the disclosure out of the way, they could be opportunistic at any time this year. Just seems like good standard practice and not necessarily an indication of absolute intention to buy back. Don't get too excited.

Is he in the same league as Seth Klarman? My feeling is "no". Klarman's ideas just seem so much more compelling.

Dazel, I am invested as well. So its going to be your fault when I make money on Altius.

I'm not participating on the upside anymore. Haven't been since about a few months before Watsa hedged his portfolio. Am fully hedged and intend to profit when opportunities arise. I can't wait till the day where I feel comfortable investing without hedging, when the excesses are finally flushed out of this dysfunctional system.

Thanks for taking the time Dazel. It looks like there are good backers/management in place at both Alderone and Altius. Its nice to know that the people at Alderone have already done this once before and are looking to do it next door again.