Partner24

I'm no expert in bankruptcy and big media liquidation situations, but if we don't at least get back our initial inve$tment, it will have been a classical value trap situation (i.e. you tought that you fund a diamond in a dumping ground, but only your eyes were shining, not the rock itself).

By the way, I'm far from being sure that any change will be really substainable going forward. So we should be able to keep that competitive advantage on our side 8) Lastly, on page 117, you get a list of 2008 asset distributions for top 25 P&C insurers. Guess who owns more than 50% of nonaffiliated common stocks of all the group on a cumulative basis? Berkshire (35.3%) and Fairfax (19.7%). Cheers!

A.M. Best monthly review has a very decent article this month about how the investment losses occured change how some of their managers rethink about how they invest. It's on page 66 or so. Odyssey re was the only one who had positive investment results in 2008 (see chart in page 68 that speaks for itself). http://www.bestreview.com/digitalversions.asp Cheers!

After that, the dividend rate will reset every five years at the five-year Government of Canada bond yield plus 3.15 per cent. Is it the case with Odyssey re preferred (U.S. equivalent)?

California borrowed $8.8 billion, selling notes at yields of 1.5 percent and 1.25 percent, which will be paid off by the end of its fiscal year that began July 1. My God, the yields are very low on an absolute basis!

The purpose of this exercice is to help realize what reasonable growth at a good price can accomplish. I guess a 30% discount to estimated intrinsic value doesn't attract some of the deep value investors out there and I also guess that 12% per annum growth doesn't attract some of the people that search for fast growing companies. But hey, if you can have both, you can achieve a very decent return. By asking for a high expected probability of 12% growth over the next 5 years, it might help to avoid some of the value traps out there and asking for at least a 30% discount it helps to avoid growth traps as well. At least that concept fits with me and I'm happy that someone, as an individual investor, turned 50 000$ into nearly 1 billion over approximately 45 years of investing by applying the principles above (and yes, with some leverage). Cheers!

Ericopoly, Lol ;) no there was no trap in that little exercice :) It would have been better to use the word "intrinsic value" twice.

Got it! ;)

- Wait until the price is right. If you like the business, but not the price, wait patiently. Davis used to say "Bear markets make people a lot of money, they just don't realize it at the time". Sometimes, it's all the market that goes bearish, sometimes that's an industry bear (banking in the 80's, health care in the 90's, etc.). - Keep your winners for the long haul. Buy them at a discount and when they reach fair value, keep them if they are winners that keep growing at a reasonable pace. Buy and hold: lower taxes, lower transaction costs, avoid frequent trading mistakes, etc. - Invest in great managers. - Ignore the rear-view mirror.

What are some of the basic Concepts if you dont mind me asking. Well, first of all, be frugal. It might seems obvious, but if you read that book, you get a feel that the Davis family takes that very seriously and you have some good real life examples in it. Then, regarding investing directly, it goes that way (I just underline some of the basics): - Avoid cheap stocks. Most "cheap" stocks deserve to be cheap and no CEO will say "Hey guys, our results will not improve over the next few years". - Avoid expensive stocks. Even it's a great business, don't overpay. Take a fast growing company that have a "high expectations" price tag and just one quarter of bad news is necessary to drive down the stock significantly. - Buy reasonably priced stocks at that grow at a moderatly fast pace. Ex.: 10 times P/E companies growing at 13% per annum. Better yet, sometimes you'll find fast growing compagnies selling at these prices, but because they operate in "boring" industries, they do not have a high price tag. Just a short math exercice here: if you buy a company that grows it's intrinsic value by 12% CAGR, you bought it at a 30% discount to it's intrinsic value and the shares trade at a fair price in 5 years. What is your 5 years return?

"I think the Davis Dynasty is one of the best books to read if you want to see how one individual compounded his weath by just owning insurance companies". dcollon, absolutely! Beside leverage, when I red that book, the light went on. I would not recommend this book as a start to learn about value investing, but when you understood the basic concepts, it's a terrific read. Some concepts fit with you, while other don't. Most of basic tenets of the "Shelby C. Davis way" paved my own little yellow brick road. Cheers!

Hmmm....Markel has compounded it's book value per share at a 17% CAGR over the last 20 years. It's not far from it's 25 years number, but I don't remember having heard Markel CEO's RECENTLY talk about confortably exceeding this return going forward. In a 2004 or 2005 interview with the Motley Fool, if my memory about that fact is not wrong, Steven Markel made some calculations and came to the conclusion that it might be able to compound book at a 19% CAGR rate going forward. He was with Tom Gayner in that interview.

Short, but interesting article about the actual P&C insurance cycle. http://www.istockanalyst.com/article/viewarticle/articleid/3497109 Cheers!

A recent article about some aspects of Bidvest business model and how it can handle the actual recession: http://free.financialmail.co.za/09/0911/moneyinvest/fmoney.htm With 80 000 employees, it has a head office that contains only 6 executives and no more than 12 peoples in all. Cheers!

The risk that you have when you want to privatize a company is that suddenly, the atmosphere become more charged, outside lawyers firm suddenly care so much about "fair prices" and some shareholders become very thirsty, while others new entrants want to speculate about how far they can stretch you on the price. That's not a situation that tend to help the potential buyer. Since the atmosphere is charged, he can fall into the trap of overpaying. So to avoid mistakes, it's a good idea to issue shares at their full intrinsic value first. But then, if you don't have sufficient cash on hands, what you should prefer? Buying big stuff by issuing debt or equity? If the debt might threatening the business life in the perfect storm scenario, you're better of having 3/4 X of something that has still some value than 4/4 X of something that is worth zero. That being said, like I said before, I prefer to be diluted at a fair price in the first place. Lastly, if you want to compare Berkshire and Fairfax solidity, let me ask you this very theorical and no numbers question: you want to buy a long term life insurance policy. You have only two insurers available, Berkshire and Fairfax, and the premiums are approximately the same. There is no reinsurance on any of them and no outside firm to garantee anything. Wich one would you actually choose? Frankly, I'm very confident that Prem and team made very significant steps in the right direction over the last few years. Their 2009 version is better than their 1998 version and it's where the puck is likely going to be that interest me most. In 2019, as a long term shareholder in the company, I'm looking forward to say that our balance sheet is stronger than ever, our intrinsic value per share over the last 10 years have compounded at a satisfying pace and our management team is also better than ever. Cheers!

The second important thing is to learn for your mistake and do your best to not repeat them in the future. That's the "rinse your cottage cheese" part. Discipline. What did I learned? First, to avoid very high gain potential, but at a significant fundamental risk "expense". So, since then, I did let pass some situations like that, and I effectively avoided some significant gains situations, but losses as well. I put more emphasis on the downside than before this experience. Now, back to Prem. Do you think guys he learned from his 7 lean years experience? From some value traps he recently falled into? I would guess that the answer is mostly yes. So far what I've seen with Fairfax is that they do care more than before on the solidity of our balance sheet. We're not a AAA company à la Berkshire, but we are in safer position than few years ago. Regarding FFH issuing shares since 1998, to me, it's a question of intrinsic value of what you give and what you get. If you issue shares at a discount to their intrinsic value for something that has less value in return, you're expanding your domain at shareholders expense. If what you issue has approximately the same value than what you buy, you're exchanging 4X25 cents for a dollar (fine with me, as long as it makes sense) If you buy something that has more intrinsic value than what you give, then your shareholders profit and it also makes sense.

Al, I think you have done some very good remarks here. The difference of Prem 1998 and 2009 versions are important enough I guess. Everybody do some mistakes and has his own house of horrors. The most important things is not betting the company on a given deal and to always keep a solid balance sheet, even if you think that there is plenty of fish to shoot in barrels around (by the way, some of them shoot back). Then, the first step is to try to clearly identify your mistakes. What went wrong with me? Let me give you an example of one of my two items in my house of horrors. Few years ago, I bought some First Marblehead shares. I tought that it would be a phenomenal gain (higher odds) or nearly lose it all (lower odds) situation. I was a little bit fearful of a credit freeze few months before it actually happened and I wrote to the investors relationship department. I've asked them if they tought that if a credit freeze was to happen, would investors flight more to safer products? Someone told me from FMD that he tought that, on the contrary, if that would happen, it would attract investors to FMD financial products. Oh boy, what history can teach us! Who made the mistake? The guy at FMD or me? ME! ...

The rest of the article show that Berkshire also has done some mistakes, but not at the expense of a solid balance sheet and Berkshire issued some shares at more than 2 times book in 1998 while Fairfax issued shares near book recently He did put some of Fairfax subsidiaries public to privatize them later. To him, it's what is called playing with the stock market. Even if it is critical and I don't agree with everything, I think it is an honest critic (unlike what we often saw over the past few years) and a must read for any Fairfax shareholder who is open to critics. Cheers!

- That being said, Prem the director is not subject to no critic. There is major differences between Fairfax and Berkshire. Fairfax is speculating with it's capital while Berkshire is particulary conservative. - It's the fourth time that Fairfax sell new shares since 1998 and the only one that has been profitable so far by the buyers is the december 2004 one. - In 2003, Fairfax nearly reached a disaster. - In a top of a good cycle for the insurance industry in 1998, Fairfax bought insurance businesses that were in bad shape and it's size tripled. Losses accumulated. - Since then, Fairfax is in a better shape, but Prem wanted to grow fast and he did put Fairfax in a dangerous situation. Warren would never do that. One of the consequences of that is the shares outstanding more than doubled since 1998.

For those who can read French (or translate it), Bernard Mooney from the Journal Les Affaires (Quebec) has written a critical, but honest, view of Fairfax that was released today. It's really far from being Peter Eavis like stuff (from those who remember it). Unfortunately, as far as I know,I think that there is no online version of it. In short: - He said that in a 1995 article, he compared Berkshire to Fairfax, saying that Fairfax was a canadian version of Berkshire Hathaway. He now regrets this past enthousiasm. - There is some points that the two companies share (insurance and reinsurance, two famous investors). - Prem the investor deserve congragulations for his investment acumen shown. His portfolio management returns are exceptional. (to be continued)

Yes, forget about the index, it's Sanjeev lunch. By far, he is the single most important factor of FFH return over the last few years. I mean, I don't know how it did cost, but his today's lunch is worth more than 250 millions $ US for the FFH shareholders. Can someone beat that return on investment? ;) For Few Hot chickens ;)

I've bought it a year or two ago. That's a good introduction to Warren Buffett to kids/teenagers. Cheers!

FFH is now large enough to attract big institutional investors. I wonder who are our new business partners. I've took a quick look at Sedar and Egdar filings, and didn't find anything related to that.

Makes sense. I have nothing to add. Cheers!

My still limited experience as an insurance investor tells me that it's not that easy to predict the timing of the beginning or the end of a given cycle, bet it hard or soft. I'll cross my fingers that we will get better priced reinsurance market, but I will not count on that on the short and mid terms. We have great investors at the helm to manage the portfolio and that will help to grow our book value per share. Regarding FFH stock repurchases, we are actually experiencing the contrary. They will issue some at a discount to their intrinsic value. They are sending the message that they will not grow at the expense of the balance sheet and do not want to repeat the 7 lean years experience. But to me, unless we buy some stuff at a very good price with the proceeds, our intrinsic value per share will be reduced after that FFH stock issue. I guess the day that you'll see massive stock buybacks will be when our stock will be really attractively priced and it will not be done at the expense of a very sound balance sheet. Cheers!