ERICOPOLY

I read an interview yesterday showing that Peter Schiff (running for Congress) wants to put the United States back on the gold standard. Even if the United States held all the gold in the world, it would only amount to about $20,000 per person. So there simply isn't enough to go around Peter. Ah, but somebody would say that they coins distributed would be silver or copper (or both). So why not a silver or copper standard? Why beat around the bush?

Based on the first 9 months of 2009, annualized interest and dividend income (less interest expenses) comes to 8% (pre-tax) of book value. At a 30% tax rate it comes to 5.6%. So, capital gains (relative to book value) need to be roughly 9.5% in order to drive BV by 15%. Are you guys saying that they can't do 9.5% from capital gains? Too big? I strongly disagree. Have you ever heard of a $7b fund that can't return 9.5% based on an argument that it is "TOO BIG"? I can't quite grasp how you can really believe that.

Has it been a "pure insurance play" the past two years? What exactly is a "pure" insurance play anyhow? I would consider a pure insurance play to be a company that 1) relies on underwriting profit to drive earnings 2) and invests the float in short term govt bonds. Fairfax is neither. Fairfax is an investment vehicle. The investments drive the growth in book value per share. JNJ is not an insurance company. WFC is not an insurance company. GE isn't either. Munis neither. Fairfax's results will be driven by the outcome of these non-insurance investments. Same as ever. Think ORH's 20% growth the past 8 years or so were driven by underwriting profits alone? It was mostly the investment returns.

You're right, that's it. Gates says the operating companies are now worth more than the "investment portfolio". IV > 2x investments (according to Gates). I guess that puts IV > 184,000 per share (according to Gates).

Somebody on this board recently (last 2 weeks) told us that Bill Gates thinks the operating subsidiaries are worth more than the equities portfolio at Berkshire. Who was that boardmember? I remember the comment, but I can't find it.

I think you're right. Too much Disneyland for me. I took something you said earlier for sarcasm, but maybe I was tired. You remind me of the good things Fairfax will bring, basically the points you are making are the reason why I hold 50% Fairfax and 0% Berkshire. I only scratch my head at whether or not the market should price liquidity at a premium... I think it is valuable to have liquidity yet I couldn't see 100% cash (an extreme example) being worth a premium to book. But whatever, I agree they are in pole position.

There are still some big public companies out there that Buffett is passing up to buy the rest of BNI. He is passing up GE, JNJ for example (both Fairfax favorites). Owns a little of JNJ already, but could certainly own a lot more. Doesn't own much of GE at all. He could have bought enormous amounts of both on a fractional basis, but prefers to own the whole of BNI. I haven't really seen Fairfax do much trading in this past year. They've been buyers the past year, but not much selling. Much of their flexibility comes from the S&P500 hedge, and that's something that Buffett could have done if he had wanted to.

I'm actually not at all upset, but I can see you are pissed off so I'll stop inverting your idea. Maybe you are having a bad day, maybe you don't like to be questioned, maybe you don't like me, maybe you think I am going after you, I have no idea. I actually thought it was a constructive conversation because you are the first person I've heard argue that companies should trade at a premium if they are invested in common stocks and other liquid assets. I had just never before heard that anywhere and was following up with questions to see if you had a special insight, but you are responding as if I stepped on your foot.

Dazel, No bait -- I am not baiting you. You say you "will bite" but just don't start taking this the wrong way. Your comment about a "liquidity premium" of sorts for fractional ownership goes against my thinking, which has been influence by watching Buffett buy companies whole when he could instead continue to buy fractional shares to retain an "advantage". My point for mentioning a couple of Fairfax's businesses on a per share basis was to demonstrate that they don't have control over the underlying cash flows the way Berkshire does with it's wholly owned businesses, nothing more. Retaining the right to have a say in the operations is an advantage in my opinion, and I don't think it should be worth a discount. I picked bad examples, they didn't demonstrate the point. Let's ask another question... if per-share ownership is such a dramatic advantage that it's worth a premium vs full ownership, then why does Buffett prefer full ownership positions? I think Fairfax even mentioned something about increased flexibility when they took the rest of NB and ORH.

I'm not sure if the liquidity argument helps the premium. Aren't these assets priced in a market that knows they are liquid? In other words, isn't this already accounted for in the price of the assets themselves? I was thinking that Berkshire actually has the advantage in the assets not being liquid -- Berkshire has the access to the underlying cash flows. When Fairfax tries to tap the value of JNJ or OSTK, it is held hostage by the bid. The only dividend it can tap from OSTK is... what??? LVLT? There are limits to the value of the liquid assets... the limit is the bid! Liquid markets can be illiquid at times.

I hold 50% in FFH for this reason. It will happen with or without a split. However, people are saying that splits encourage speculators. If that translates to a higher share price, then it may translate to higher IV per share if shares are sold at the higher price vs an otherwise lower price. Perhaps I was splitting hairs, but the mechanics of this fascinates me. Stock price does influence IV, depending on management action. If management does not act, then stock price does not influence IV. Soros mentions the impact of price in his relexivity idea... personally, I don't think reflexivity is especially earth shattering, I think it is common sense. But many don't believe it exists.

It might actually. Potentially. On a per share basis. To the extent that it encourages a dramatically higher P/B valuation, and they use the shares as a currency for acquisitions, then it does. If the acquisition were to happen anyhow, but the split allowed it to happen at a more favorable share price, then it increases IV per share. However, if it does not encourage a higher P/B valuation, then it doesn't.

1.35x for Berkshire is equal to a much smaller multiple for Fairfax. Fairfax at book value might mean that you are paying a large multiple of book. Use the look-through idea of book value (what is the weighted P/B of the shares in the Fairfax portfolio?). Berkshire has so many operating companies that are wholly owned and the book value reflects a much lower number than the market would value those businesses at if they traded as shares marked-to-market.

But the share price hasn't always been high. How did he manage to have business-partner like shareholders back when the stock was as low as it is now going to be once again? As long as he doesn't get into the forecasting game of managing earnings, then all should be well. FFH's stock price for example is only 10% of Berkshire B shares, does this mean that shareholders have only 10% of the long-term focus?

The first thing that article does is quote Thomas Sowell. This is the scholar they quote from: http://www.freerepublic.com/focus/f-news/1397106/posts I have read three of his books. To say the least, his ideas surprised me.

Food rationing might be necessary. I went to a buffet at Disneyland last night and there were all these 300lb people piling the plate high with fried chicken, mac&cheese, bread&butter, coke, cheesecake... then going back again and again. It was truly disgusting, and just imagine the costs to clean up this problem later on. Yet the food industry bears none of that cost... they privatise the profits of overfeeding people on unhealthy food while later we'll socialize the cost of fixing the patient. People get outraged about the financial bailouts but this doesn't look much different. The costs of cleaning up the mess are not born by the people making money as the mess is being made, and it's obvious to most of us that a mess is being made. Without food rationing, we'll just have to make unhealthy food much more expensive via taxes so that the free market will encourage people to make the right choices... otherwise the choice is bankrupting ourself on healthcare. When the junk food is the cheapest, the free market incentives encourage people to get fat. That isn't an efficient allocation as a society because later we all wind up paying for that.

The Blackfoot tribe (Montana) just used to leave their elders behind (to die of cold or be torn apart by beasts) when they could no longer move with the buffalo herd. Maybe we're just going full circle back to "savages".

I believe the socialists intervene and he gets treatment (we could let him die if we'd just let the free market work for once) :) It's like TARP, but for sick people (we choose to treat them in the emergency room at higher cost than preventive medicine).

$2,500 is not realistic in the US for bypass surgery. It's not even realistic for surgery on a pet. Two years ago I spent $5,000 getting a double knee operation for my dog (non emergency). It's not like malpractice risk is as high with a dog, it's just what they charge (those bastards). I can afford the operation, and I want to walk my dog. Dog is only 4 yrs old at the time... they have me over a barrel so I choose the dog over the money (I care more about the dog than the money). This same dog also slipped a disc a few years ago ($2,000), and 10 months later was attacked by another dog ($1,500). The dog cost $1,500 to purchase from the breeder... so thus far I'm sunk $10,000 on this dog in just 6 years.

Granted, I recognize that you were only providing an example... but I wonder whether the example is something that describes an untenable system altogether, or a good example of public coverage not completely crowding out the private sector... it's some meat left on the bone that private insurers can write coverage for. Is there some reason why the private sector isn't providing an insurance plan to cover people age 65 and older to get dialysis? I really don't know, but is it illegal to write any form of health insurance in the UK to cover the obvious holes?

I live in Washington state, and you are right... it is standard on employer policies. Law requires the insurers to provide it to employees of corporations, and that's why if I incorporate a lemonade stand in my front yard I can then be assured of getting such a policy. But if I don't pull that bullshit stunt, they won't offer it! Thus, without the law putting a gun to their head, one can see how the free market behaves... they refuse to offer prescriptive coverage to individuals for example. Do unemployed individuals have a higher rate of cancer than employees of lemonade stands? Can anyone enumerate the benefits we get as a society by having private health insurance? All the money they make from their float, we can keep it for ourselves... and that's an obvious gain. So what do we lose by getting rid of the private system?

The supposed free market profits are also illusory -- the P&L of the insurance industry does not include the cost of me fighting with the insurance company over a claim (my time and legal costs). It also does not include the public cost of a court system used to resolve these disputes. Make the private insurers bear these costs, and then we'll see how efficient it really is.

I told my agent that I had millions and can pay -- don't just offer me policies that you think I can afford, I want to know if there is an expensive policy out there that can pay for chemotherapy. She told me that no, it doesn't even exist! Hey free market ethusiasts, what do you have to say about that? She recommended that I form a corporation, make myself an employee, and then options are available to me that will cover cost of prescriptions (which is where chemotherapy falls into play). So I can incorporate a lemonade stand, or I can have chickens and sell eggs, or something else completely stupid just so I can get full coverage. What a joke. The free market works? Let's say I could get care... down the road they can deny my claims if they find out that I lied about a mental illness or a pre-existing heart condition... even if I'm filing for reimbursement on chemotherapy. Nice system folks.

How about 911 dispatcher? Shouldn't that be run for profit? Or how about police protection, shouldn't that be run for profit? And shouldn't the fire department be run for profit? That's why I can't stand this socialist country -- people don't deserve a police force unless they can afford security fences and armed private security guards. If a house doesn't have fire insurance, should a for-profit fire department be required to respond? And if the for-profit fire department responds to an uninsured fire and the owner can't pay for the cost of the fire fighting, who pays? The other policy holders? Isn't that basically what's going on today with health insurance? One could see states/counties eliminating their public police force and contracting with Blackwater USA to provide police protection. Does having a for-profit police force bring it's own set of moral hazards? Is it desirable to have a police force with a profit motive? Blackwater actually already has done this within the US -- providing police protection in the wake of Katrina.

Looks like they still plan on holding Wells Fargo for the long term :) “We like the stocks that we have such as Johnson & Johnson, Wells Fargo. Our thinking is that the stronger get stronger and good management will prevail. Look at the commercial/industrial mortgage problem. There are 100 regional banks in this and say they all go bankrupt. That means there’s opportunities for strong banks like Wells Fargo who can buy regional or smaller banks for nothing.”