Liberty

Eggbriar, out of curiosity, can you describe the content a bit? Is it only a compilation of interviews? Were they done specifically for the book or gathered from various places? How many pages? Thanks!

Ha! I had noticed that! It makes you two sound in a good mood and enthusiastic, so that's not a bad thing ;D

Thank you so much! I truly appreciate it, as I love learning more about this fascinating company that is around 1/3 of my portfolio ;D

Another great excerpt:

I just thought that if it's not possible to get hard copies for people not at the assembly, maybe Fairfax could publish the PDF on their site. A hard copy would be better, but this would be second best.

I'm not done reading the annual letter yet, but after reading the part about the book above I became sad because I probably won't be at the shareholder's meeting :-[ Is there any way at all that we could organize it so that people who can't make it still get the book? If someone can pick a copy for me I'd have no problem paying for shipping (via paypal or I'll send a check). Or can anyone with contacts at FFH (Parsad?) ask if they will be sending copies of the books if we contact their investor relations or something like that? I really want to read it. Thanks! ;D

A_Hamilton, that's kind of what I said in the next paragraph that you didn't quote. I'm ok with FFH investing in messy stuff in its equity portfolio, and I'm not one of the people complaining about it because I know that they still have tons of quality stuff too, but for some reason, I'm a lot more nervous about them doing the same thing with wholly own subsidiaries. As for WEB, I'm pretty sure that Buffett had said that he'd now have billions more if he had never bought Berkshire Hathaway, so that might not be the best example for FFH :)

I do have a few doubts. Here's my thinking: The Fairfax ppl are very smart and their investing success lies in good part in their businesslike approach (they try to understand the businesses, instead of just the stocks as abstract things). These qualities that help them buy parts of businesses should help them make good choices when it comes to whole businesses. What I'm worried about is that they'd go for messy turnarounds rather than quality businesses with durable competitive advantage and low capital requirements that come with a good management (a Canadian See's Candies or whatever). But I'm not sure if my fear is rational. After all, if they're doing a good job of owning parts of messy businesses in their portfolio, maybe on average they would get equally good results with wholly owned messy businesses? Of course, it's harder to dump the whole business than dump a stock when it turns out you were wrong, and if things go really wrong, it'll take more resources to deal with (most important of all, the mental energy of FFH's top brains). I think that's why I'd rather see them go the BRK/MKL way and stick with quality, but that's as long as whatever they buy has a higher expected return than a comparable investment in stocks or in an insurance co acquisition. That might not happen that often, but it could be more frequent as they become bigger...

Does anyone have Od. Re's average combined ratio for the past 10+ years handy? After a quick look, it seems to move between 95% and 110%, but that's just at a glance.

I hope so - BRK did it, MKL is starting to do it. It seems like an excellent "next step" for FFH. Fron your lips to Prems ears..... I agree as long as that's the best allocation of capital (and I know I'm stating the obvious, but it must be said). If insurance cos are cheap right now, that might be the best thing to acquire more of, but that won't always be the case and it would be nice to have a structure set up so that we know that capital can go to the best businesses available regardless of whether they are insurance or not, or publicly traded or not.

I think Sea Island was kidding guys, but you never know on the internet. That's why it's important to use smileys ;D

You can't know, but you can say: History has taught me that a couple years form now things will probably be much better. If they aren't, I lose, but I'm betting the higher probability that they will be. And if I lose, chances are that selling in 2010 will turn out to be better than selling in 2008 when the panic started (panics is intense, but it rarely lasts 2 years). And if I do lose, what do I lose? Not everything, because I can sell just enough to create a 1 year buffer and see in 1 year if things are better, I don't have to recreate the whole 3-4 years buffer. That's my thinking right now, anyway. I should do more research on the average duration of stock market panics and how fast things bounce back...

I think that as long as you evaluate things based on your best assessment of intrinsic value (IV) and don't listen to the forecasts (which are influenced by fear or greed), you should be able to tell when things are getting so out of whack that you shouldn't sell (f.ex. you evaluate company X to be worth around $100/share and Mr. Market is offering you $50). Maybe things will keep falling, but if that happens I still wouldn't sell.. Only if a recession lasts for 3-4 years would I have to make the choice of selling or going back to work to avoid selling, and those kind of recessions don't happen that often so there's a margin of safety there.

FFH is about 30% of my portfolio.

I figure these guys probably deserve their own thread. But before we get into anything else, I'd like to ask if anyone on this board has more details on the backdating options story: http://www.insurancejournal.com/news/national/2008/07/22/92069.htm http://www.lawyersandsettlements.com/settlements/10821/hcc-stock-option-fraud.html http://uk.reuters.com/article/2008/02/08/hccinsurance-lawsuit-idUKWNAS022520080208 There doesn't seem to be much out in the open about the real story, but it doesn't smell too good and makes me very hesitant about considering investing in them if there's any ethics problems and/or fishy options. What do you guys think? Is it a lot of BS that means nothing, or a sign that maybe something is wrong behind the curtain at HCC?

The idea with the buffer is that you wouldn't be forced - or at least only very rarely - to sell at bad times. If there's a big recession, you can wait it out. Your buffer would become smaller, but at least you usually won't have to sell are really low market valuations. The thing about taxes was mostly in comparison with the general wisdom of going 50% or more in bonds. If I start with 100% stocks that have been compounding for 15 years and have to sell half of them to go in bonds, the tax bill would be enormous. My alternative of only selling enough to create a buffer would reduce these taxes and allow the money to keep compounding tax-free. But it isn't really advantageous over your approach, unless there's a recession that forces you to sell really low.

Thanks jb85, very interesting. I think that I now see how your approach could work for you but maybe not for me. You can see my investment approach (at least at this point) here: http://cornerofberkshireandfairfax.ca/forum/index.php?topic=3762.0 I'm more of a late-Buffett/Munger than a Graham kind of guy, so I tend to hold a certain type of stocks for a very long term rather than find undervalued stuff that I sell when it becomes fairly priced and then move on to another stock. If I used that approach, I wouldn't have that much unrealized gains so the tax hit would only be marignally higher if I frequently sold stocks. Or am I overestimating the impact of the difference between our two approaches on wether it would be a good idea to have more "buffer" or keep it minimal? I think I need to think some more about this..

BRK in India. Interesting.

Source: http://www.cnbc.com/id/41877271/

Indeed. I wasn't specific, but I didn't mean that the whole buffer should be in cash. The problem remains that by the time I decide to live off my investments, I might have quite big unrealized gains. If I sell those stocks to buy bond stocks or whatever, I'll pay as much in taxes as if I went straight in cash, which is why I'd like to have a "buffer" only as big as necessary and not bigger so that the rest of the money can keep compounding tax free.

I second that. I'm a new member, but as a lurker I've read more than half of the archives of this board, and I've gotten a lot of value from a lot of different posters, even some of those that I disliked at first turned out to be knowledgeable and generous in sharing their insights.

That's an interesting idea, jb85, so let me elaborate on my thinking and you (or someone else) can tell me if I'm off base: The idea of having the buffer is to 1) have liquidity if you need it for emergency or whatever and 2) be able to live off of it if the market does something like it did in 2008 and you don't want to have to sell parts of wonderful businesses at 50% of their IV or whatever. Obviously, if the markets stay quite depressed for more than 3-4 years, you might have to sell at low prices or get a job to get you to the end of the crisis (if you REALLY don't want to sell those businesses at those prices). If I understand your approach correctly, you would be 100% invested and just live off dividends and frequent sales of stock. Is that correct?

You'll get no argument from me that 10 years is better than 3-4, but for me that would delay things quite a bit, unless I keep my expenses really low (which might happen anyway as I'm very frugal and tend to be happy as long as I have books and an internet connected computer). Maybe there's a way to start with 3-4 years of cushion and progressively build it up to something closer to 10 years if your equities perform well, and still have enough for most recessions in the meantime. It's not the safest thing in the world, but worse case when you retire young is you go back to working a bit until things bounce back.

part 5 (there are 2 videos on the page, both of them pretty short) http://www.cnbc.com/id/41874506/ Update: Here's part 6 http://www.cnbc.com/id/41875747/ Part 7: http://www.cnbc.com/id/41877271/

I'm not quite ready to live off my investments (I'm 28), but that's a question that I have been trying to answer too. The conventional wisdom is to move more heavily into bonds when you take the plunge, but I feel like there must be a way that is more tax efficient (so you don't realize too much capital gains and pay tons of taxes) and gives better return prospects over the long-term while retired, even if the ride isn't as smooth. Something like taking out enough money to live 2-4 years comfortably and leave the rest mostly into high-quality equities, so that if there's a big recession, you should have enough cushion to get through it without having to sell at the bottom. f.ex. You have 2 million in stocks. You take out 300k (after tax) because you want to live on 75k/year and leave ±1.5 million to keep compounding tax free in stocks. Sell a bit out when you feel valuations are high so that you have 3-4 years of cushion most of the time, rinse and repeat..? Is this a strategy that makes sense to the people here (even if it isn't the conventional wisdom in the mass financial media)? Or would you try to sell more, pay the taxes, and move heavily into bonds when you decide to retire?