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FFH predict the peak
sswan11 12/20/2008

Speaking of ICO it seems Fairfax bought near the lows; I don't know much about the coal industry but ...

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Is the Hedge Fund world Corrupt?
valuecfa1 12/19/2008

the dirty practices the defendants used. Defendants went to such lengths to try to destroy Fairfax, that they threatened, harassed, and sought to intimidate Fairfax's high level executives and their ...
they disseminated widely in the market false and defamatory rumors, including for example, rumors that Fairfax's CEO had absconded with stolen company funds, and was being pursued by the Royal ...
sent threating and derogatory communications and materials to Prem Watsa's pastor, his assistant, large Fairfax shareholders, analysts and rating agencies. That's not even half of the insane things the ...

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Is the Hedge Fund world Corrupt?
valuecfa1 12/19/2008
size was too large. So you can view it by following this link: http://www.fairfax.ca/Assets/Downloads/Press/fpr2006-07-26.pdf -- Fairfax Financial Holdings Limited announces that today ...
number of defendants who, the complaint alleges, participated in a stock market manipulation scheme involving Fairfax shares. The complaint, filed in Superior Court, Morris County, New Jersey, alleges violations of various ...
Inc., John D. Gwynn, and Christopher Brett Lawless. Has anyone ACTUALLY READ the charges that Fairfax Financial is bringing upon the most powerful hedge funds on Wall Street? The extent of ...
...
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Filing Dated mid- 2006:

If you have not read the actual lawsuit, I strongly encourage you all too.

I tried to attach the actual lawsuit, yet the file size was too large. So you can view it by following this link:

http://www.fairfax.ca/Assets/Downloads/Press/fpr2006-07-26.pdf
--

Fairfax Financial Holdings Limited announces that today it filed a lawsuit seeking $5 billion in
damages from a number of defendants who, the complaint alleges, participated in a stock market
manipulation scheme involving Fairfax shares.
The complaint, filed in Superior Court, Morris County, New Jersey, alleges violations of various
state laws, including the New Jersey Racketeer Influenced and Corrupt Organizations Act
(RICO), pursuant to which treble damages may be available.
Defendants include: S.A.C. Capital Management, LLC, S.A.C. Capital Advisors, LLC, S.A.C.
Capital Associates, LLC, S.A.C. Healthco Funds, LLC, Sigma Capital Management, LLC,
Steven A. Cohen, Exis Capital Management, Inc., Exis Capital, LLC, Exis Differential Partners,
L.P., Exis Integrated Partners, L.P., Adam D. Sender, Spyro Contogouris, Max Bernstein,
Andrew Heller, Lone Pine Capital, LLC, Lone Pine Members, LLC, Lone Pine Associates, LLC,
Rocker Partners, L.P., Copper River Partners, L.P., David Rocker, Third Point LLC, Daniel S.
Loeb, Jeffrey Perry, Trinity Capital Of Jacksonville, Inc., Trinity Fund, Ltd., Morgan Keegan &
Company, Inc., John D. Gwynn, and Christopher Brett Lawless.

Has anyone ACTUALLY READ the charges that Fairfax Financial is bringing upon the most powerful hedge funds on Wall Street? The extent of the manipulation that these Hedge Funds went to to earn a buck is simply jaw dropping.

It is amazing how far the tentacles of the hedge funds stretches, and the lengths that they go through to illegally move a company's share price.

If/when these Hedge Funds are convicted, it will be the biggest story Wall Street has ever heard. The Hedge Funds indicated in the suit collectively control a large percentage of the volume of the NASDAQ and NYSE.

I am shocked that the allegations (especially given the credibillity of Watsa, and the lackthereof at the Hedge Funds) have not gotten more attention throughout the media.

What will this mean for the shady, "nondisclosed" world of hedge funds and the financial markets, when the case hits trial and reveals the extent of the evil practices going on at the top of Wall Street.

The massive Bernie Madolf scandal will look like a walk in the park compared to these Hedge Funds!!

accompanying link:

http://www.fairfax.ca/Assets/Downloads/Press/fpr2006-07-26.pdf

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FFH predict the peak
Dazel 12/19/2008

in their portfolio....Their stock doubled every year for 7 years...I would argue that Fairfax per share is in better shape than Berkshire in 1990. I love Warren Buffett as ...
slight of him or Berkshire. I am sure that Prem would tell you that the Fairfax hero of today is Brian Bradstreet. We are betting the hero's of the next ...
happy campers. Berkshire's size and large portfolio does not allow him the mobility of Fairfax. Mr. Buffett willl make a killing in the bond and stock market over the next ...
...

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Fairfax-Just the facts Jack
oldye 12/18/2008

Disclosure we are long Fairfax and biased... should be the new site slogan!...

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Fairfax-Just the facts Jack
Dazel   12/18/2008
Disclosure we are long Fairfax and biased... Market cap $5.5 billion PE multiples now 3.51 ...
numbers could be high or low. Credit default swaps have been the talk of Fairfax. We think Fairfax was a seller in quarter 4 but we value upside in our ...
be conservative...we will call the $453 million hedge and stocks a wash.. zero. Fairfax had $1.127 billion in earnings going into quarter 4 so lets call earnings $2 ...
...
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Disclosure we are long Fairfax and biased...

Market cap $5.5 billion

PE multiples now

3.51 trailing earnings...

It will not change much after 2008 4th quarter.

Bond Gains are in the range of $1 billion to $2 billion... we like to use that range because we feel they will conservatively mark all of their bond investments to low ranges as they have done during the first 9 months of the year. Certainly they are the biggest winner per share in the world on their Treasury bet. The market has not realized this yet.

We have estimated the swap hedges gains for the Sept 30th to Nov 20th at $453 million...these weighted average numbers for the percentage moves in the S&P index using the past gains in the 3rd quarter of this year. These numbers could be high or low.

Credit default swaps have been the talk of Fairfax. We think Fairfax was a seller in quarter 4 but we value upside in our calculations at zero. However, the cash that they bring onto the balance sheet is excellent amunition for future compounding.

There were not any natural disasters in the fourth quarter of consequence. Lets call underwriting and interest expense a wash.

There common stock portfolio of $3.5 billion would have been hurt before Nov 20 but the market is up 20% since. Lets be conservative...we will call the $453 million hedge and stocks a wash.. zero.

Fairfax had $1.127 billion in earnings going into quarter 4 so lets call earnings $2 billion. This could be high or low on the above assumptions. This would give Fairfax a PE of about 3 or 4. These earnings will go down in history as the greatest single year for a corporation in light of what has transpired. We will hear the "Buffett of the North" again as we see in the press. We do not care because the market is missing what has happened at Fairfax over the last 6 years. They are discounting what Fairfax will do with their winnings.

Fairfax investment returns

2002-$1.1643   11.2%   average investments $10.377 billion

2003-$1.3004   11.3%

2004-$  .8418   6.5%

2005-$ .9248   6.5%

2006-$1.2881   8.1%

2007-$2.5737   14.4% average investments $17.898 billion

total- $8.931 billion in 6 years

This year? call it $2 billion...That is over $10 billion in 7 years...market cap $5.5 billion? The average investments for 2008 will approach $20 billion and next year that will grow by this years winnings and the new float that will come to Fairfax from those who want to be insured by a strong company.

Their average return over the last 22 years  is 9.5%...here are some numbers:

$20 billion average investments for 2009 possible returns

5%     -$1 billion

7.5% -$1.5 billion

10%   -$2 billion

12.5%-$2.5 billion

Average Investments doubled between 2002 and 2008...six years without acquisitions...if they were to go up by half that rate to $30 billion you can see what the earnings power at Fairfax would be in 5 years.

Insurance side of things. Reinsurance recoverables are now at $4.436b down about half in the last 6 years! Reserves have held up very well and remember TIG...well enough said...Run off is fixed and contributing on investment gains.

We think the investment environment for Fairfax is excellent and they are loaded with liquidity and cash to take advantage of the opportunity. The compounding effect of the Fairfax team's huge gains over the last two years leave the company in the best shape it has ever been. The future is very bright.

Dazel.

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Sanjee on lunch?
SanjeevParsad 12/18/2008

We also haven't announced it yet, but Prem has offered to let me take Fairfax private...thus the move in the price today. I've offered him my ...

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A question to boardmembers...
alekbaylee 12/18/2008

advantage to wait for my NB shares to be bought back early next year by Fairfax versus selling them right now on the open market for the same price ($39)? ...

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Fairfax check up
(deleted) 12/18/2008

This message has been deleted by the author.

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Fairfax check up
ericopoly 12/18/2008
I figure the currency issue is going to cost maybe $300m pre...
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I figure the currency issue is going to cost maybe $300m pre-tax. Does that sound too low to anyone?

I think S&P500 is up 20% since the day they closed out the hedges. One should think their portfolio has bounced accordingly, but how big is the portfolio? It was big before it got cut in half, but did they take the gains on equity hedges to double the equity portfolio? Or perhaps something else. Too little I know -- can't wait for the Q4 release.

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Motley Fool Milks Fairfax!
rbgibbons 12/18/2008

and a lot from the out of the money LEAP calls the last time Fairfax was in the 90s.) So, I don't think you can really say ...
to figure out who it is. Richard (Disclosure: Still long Odyssey and Fairfax) ...

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Fairfax check up
Crip_1111 12/18/2008

Anyway, I think that we will see some interesting gains,...

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Fairfax check up
glider3834 12/18/2008
munger yes you're correct- both FFH & O...
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munger

yes you're correct- both FFH & ORH are diversified by geography

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Fairfax check up
mungerville 12/18/2008
glider, FFH and ORH may have similar US exposure ...
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glider,

FFH and ORH may have similar US exposure percentage wise.

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Berkowitz interview
glider3834 12/18/2008

consideration - I think Berkowitz is right to highlight this I would actually bet that Fairfax's returns will eclipse Berkshire's over the next 5-10 years because Fairfax can ...
smaller investments. I would even bet if roles were reversed & Buffett was running Fairfax & Prem Watsa was running Berkshire that Buffett with Fairfax could probably do better than ...

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Deep Capture on Fairfax Vs Sac and Bethany McLean
valuecfa1 12/17/2008

http://www.gurufocus.com/forum/read.php?1,41996

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Motley Fool Milks Fairfax!
SanjeevParsad 12/17/2008

Good stuff Richard! You also made the right call on FF...

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Motley Fool Milks Fairfax!
Partner24 12/17/2008
Richard. Keep the good work. If I keep up this rate, look for another Fairfax article sometime in 2010. Well, let me think about a possible 2010 title: "...
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It's good to see you Richard. Keep the good work.

If I keep up this rate, look for another Fairfax article sometime in 2010.

Well, let me think about a possible 2010 title:

"The next Prem Watsa"

"The Prem Watsa of the South"

"You see, I was right on FFH"

"FFH: a Fool Found it a Heck before the others"

"FFH: the perfect storm, the perfect tailwind...and my weather forecast of it's future"

Cheers!

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Motley Fool Milks Fairfax!
rbgibbons 12/17/2008
nbsp; In addition to the article that Partner24 pointed out, I wrote this article about Fairfax too. http://www.fool.com/investing/value/2007/03/22/an-incredibly-cheap-...
stoc If I keep up this rate, look for another Fairfax article sometime in 2010. Richard (Disclosure: Still long Fairfax). ...
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Yep, I'm still around. In addition to the article that Partner24 pointed out, I wrote this article about Fairfax too.

http://www.fool.com/investing/value/2007/03/22/an-incredibly-cheap-stoc

If I keep up this rate, look for another Fairfax article sometime in 2010.

Richard

(Disclosure: Still long Fairfax).

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FFH bonds
BigBear 12/17/2008

s: 16% YTM due 2015 Fairfax is arguably safer than GE, yet its bonds trade a lot closer to Macy's, ...

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Looks like FFH bonds all yield about 1,000 basis points (10% per annum) more than treasuries of the same maturity.

I don't have a whole lot of interest buying something at a 13% yield-to-maturity as I think there are better opportunities in bonds right now, but this seems completely crazy to me.

By way of comparison, I looked at bonds due 2015 from four different issuers:

US Treasury: 1.4% YTM due 2015

GE Capital: 5% YTM due 2015

FFH: 13% YTM due 2015

Macy's: 16% YTM due 2015

Fairfax is arguably safer than GE, yet its bonds trade a lot closer to Macy's, an overlevered retailer facing a terrible retail environment. Macy's has a $4 Billion market cap and $9 Billion in long-term debt. FFH has a $5 market cap and only $2.5 Billion in long term debt - and at longer maturities to boot.

I know it probably makes sense for FFH to have some debt, and this post is partially just a rant about how irrational the market is with regard to FFH even today . . . but I think you can also make the argument that there is a risk free asset FFH can buy at a 13% plus annual yield: its own debt (which they have been doing little by little).

If the current ability for FFH to buy back their own debt at a 13% YTM is any guide, I think we can expect them to get the entire portfolio yielding above 13% (9% is their long term return on fixed income, and this is an especially good environment).

I know I have made this argument before, but . . .

if they get a 15% yield on total assets of $20 Billion, that is $3 Billion in annual income (assuming it is all income, it is better tax-wise if some is capital gains).

Assuming 100% combined ratios (others have argued against this is the past, but we are apparently headed for a hard market, and I think this is a reasonable assumption over the next few years) and a tax rate of 36% (not sure how interest/dividends are taxed in Canada, but I think this is conservative) we are looking at over $1.9 Billion in annual earnings, or about $114 per share in after-tax earnings.

Please let me know if anyone has more intelligent thoughts on the tax rate or anything else, but it appears to me that we are looking at an asset selling for $300 per share, that will have sustainable earnings of $100+ per share, which will likely grow at 20% plus per year as the capital base grows.

Thoughts?

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Deep Capture on Fairfax Vs Sac and Bethany McLean
SanjeevParsad 12/17/2008

about 50 negative articles in six months at the Thestreet.con? I wonder why Fairfax didn't include him, or why his personal emails and phone records aren't being ...

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Deep Capture on Fairfax Vs Sac and Bethany McLean
smw3971 12/17/2008
Judd at the Deep Capture blog has now stated in the comments ...
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Judd at the Deep Capture blog has now stated in the comments section that he will find a way to digitize and distribute all the hard copy pages he's already got in his possession. I would imagine it won't be long before this stuff is all over the place for people to pick through.

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Motley Fool Milks Fairfax!
uccmal2 12/17/2008

and his posts are quite thoughtful and helpful.

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Motley Fool Milks Fairfax!
uccmal2 12/17/2008
I think Richard has posted here recently. A.
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I think Richard has posted here recently. A.

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Mark Sellers on being a good investor
SanjeevParsad 12/17/2008

incentive or bias. You are witnessing the difference today when you watch Berkshire and Fairfax, relative to how the stock markets have behaved. Cheers! ...

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They could "roll" the CDS bets...plus they were extra alert and was going to be opportunistic with them. I don't think the CDS were protection, i think they saw the spread was low and realized that didn't make sense. They didn't lever up on that bet like LTCM, it was a small portion of their assets. Plus a 20-25 year bet, with climate change being what it is, is not necessarily better.

Sure, but things can go on in a certain direction for a very long time. When things were about to correct in 2002-2003, they instead went up even further. The CDS bet was a good bet...but it had a bit of luck in the timing. Remember, they had lost about 80-90% of the swaps value at one point because the irrationality continued on its course.

With climate change, Munger has talked about this. There may be certain areas where their losses may increase, but climate change will also have some benefits in certain areas where they will not suffer past losses. Think about it. You may get increased hurricane activity in the Gulf, but suddenly the annual ice storms through the Eastern U.S. and Canada will decrease. You may have increased flooding in Europe but fewer car accidents due to better weather.

The S&P put buffet did has a unique characteristic - companies that do well will be added to S&P and companies that do bad will be dropped, thus the S&P index has an innate survival bias. The survival bias means in 20 years, even if standard of living did not increase, the INDEX ITSELF will have churned in such a way that the bad is dropped out and the good is added. I don't see any upside bias built into long-tail insurance.

It may have an innate survival bias, but you can have 15 year periods where it is still at a loss. In insurance, good underwriting and solid investment management is your advantage if you have the discipline...you don't require any sort of added incentive or bias. You are witnessing the difference today when you watch Berkshire and Fairfax, relative to how the stock markets have behaved. Cheers!

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Motley Fool Milks Fairfax!
Partner24 12/17/2008

I've found it! It's Richard Gibbons (board member name rbgib...

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Motley Fool Milks Fairfax!
Partner24 12/17/2008
No, it wasn't him. As far as I know, he wasn't p...
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No, it wasn't him.

As far as I know, he wasn't part of the value team. Philip Durell lead it.

The guy is a contributor to the Fool IV team and was a board member here. I'll try to remember his name and post it.

Cheers!

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Motley Fool Milks Fairfax!
zarley03 12/17/2008
of the Inside Value team; although, I don't recall anything about his opinions on Fairfax....
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Partner:

Was it Bill Mann? I've found him to be about the only decent analyst/writer they have. I'm pretty sure he was part of the Inside Value team; although, I don't recall anything about his opinions on Fairfax.

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Deep Capture on Fairfax Vs Sac and Bethany McLean
watsa_is_a_randian_hero 12/17/2008

"Access to web based PACER systems will generate a $.08 per ...

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Motley Fool Milks Fairfax!
Partner24 12/17/2008

section of the Fool and who was also a board member here that wrote about Fairfax years ago. He was quite balanced and fair in his comments. I don't ...
nbsp; But I also remember that the Fool in general was not really warm about Fairfax between 2003 and 2007. ...

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Deep Capture on Fairfax Vs Sac and Bethany McLean
misterstockwell 12/17/2008

PACER is the source of filings--a certain amount of pages are...

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Deep Capture on Fairfax Vs Sac and Bethany McLean
FFHwatcher 12/17/2008
She has a math degree, was an analyst at Goldman and was made...
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She has a math degree, was an analyst at Goldman and was made famous for playing a role in exposing Enron. Not likely.

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Deep Capture on Fairfax Vs Sac and Bethany McLean
arbitragr 12/17/2008
So Bethany McClean is a bad guy? I'm sure she should know bet...
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So Bethany McClean is a bad guy?
I'm sure she should know better .... maybe she trusted the hedge fund guys judgment that they were right in their reasoning too much without doing her own unbiased research??

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Deep Capture on Fairfax Vs Sac and Bethany McLean
(deleted) 12/17/2008
This message has been deleted by the author.
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This message has been deleted by the author.

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Fairfax check up
ericopoly 12/17/2008

we run out of trees to quote Jim rogers- so I'm quite happy knowing Fairfax possesses a truely global franchise which is not 100% US centric I thought you ...
were instead going to say "so I'm quite happy knowing Fairfax posses a lot of forestry holdings". ...

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Deep Capture on Fairfax Vs Sac and Bethany McLean
viking 12/17/2008

I just hope they get a couple of people by the n*ts hard eno...

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Deep Capture on Fairfax Vs Sac and Bethany McLean
smazz104 12/17/2008
yea, thats something else.
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yea,

thats something else.

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Mark Sellers on being a good investor
SParsad 12/17/2008

have control of their destiny through the investment and underwriting process. The certainty for Fairfax to be correct on the insurance is closer to 60-80% and I'm probably ...

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Deep Capture on Fairfax Vs Sac and Bethany McLean
benhacker99 12/17/2008

If this is real, I'm absolutely flabergasted... I hope Fairfax takes this as far as it needs to go to clean this crap out. ...

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Motley Fool Milks Fairfax!
smazz104 12/17/2008

Those who can, do. Those who cant just write abou...

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Motley Fool Milks Fairfax!
SParsad 12/17/2008
After years of milking Berkshire in their articles, the Fool is now turning to Fairfax. If Prem could only buy some swaps on Fairfax's publicity...guaranteed at ...
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After years of milking Berkshire in their articles, the Fool is now turning to Fairfax. If Prem could only buy some swaps on Fairfax's publicity...guaranteed at some point they'll be calling him a has-been again!

This fellow Rich Duprey has really been riding the gravy train. Three articles in six days!

http://www.fool.com/investing/general/2008/12/10/5-top-three-digit-stoc

http://www.fool.com/investing/international/2008/12/15/stocks-that-will

http://www.fool.com/investing/general/2008/12/16/5-stocks-approaching-g

Cheers!

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Mark Sellers on being a good investor
SParsad 12/17/2008

let along Buffett and Munger, would suggest using that alogorithm. If anyone invested in Fairfax simply for their CDS exposure, that could have been a losing bet. I personally ...
invested in Fairfax because it was cheap relative to its conservative earnings...excluding CDS gains. That was ...

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Deep Capture on Fairfax Vs Sac and Bethany McLean
watsa_is_a_randian_hero 12/17/2008

this says the discovery was released. we need to get our han...

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Deep Capture on Fairfax Vs Sac and Bethany McLean
BigBear 12/17/2008
Great Stuff! I'm still waiting to see a paper trail to He...
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Great Stuff!

I'm still waiting to see a paper trail to Herb (the 25th would be an ideal day), but I fear he might have been sneakier than Bethany.

-BB

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Deep Capture on Fairfax Vs Sac and Bethany McLean
oldye 12/17/2008
http://www.deepcapture.com/bethany-mclean/
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http://www.deepcapture.com/bethany-mclean/

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Fairfax check up
Dazel 12/17/2008

go into how important this is to book value and how under priced it makes Fairfax...Not this time.(although book value will be a ton higher!) It destroys ...
the very last knock against Fairfax which was what the hell are they doing buying long treasuries! The billions they have ...
have massive liquidity. The market was dead wrong about treasuries! As an owner of Fairfax over the last 6 years it was as important to know where their ...
...

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Fairfax check up
glider3834 12/16/2008
does anyone have a comment on the Euro dollar futures Fairfax bought last quarter & what the returns will be on these ? ...
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does anyone have a comment on the Euro dollar futures Fairfax bought last quarter & what the returns will be on these ?

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Fairfax check up
glider3834 12/16/2008
The gains from treasuries/govt bond holdings for Fairfax are going to be really significant, I can't wait for the end of year ...
we run out of trees to quote Jim rogers- so I'm quite happy knowing Fairfax possesses a truely global franchise which is not 100% US centric One fear I ...
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The gains from treasuries/govt bond holdings for Fairfax are going to be really significant, I can't wait for the end of year report, lets hope they are cashing in on this rush to stuff money under a mattress!

I still prefer FFH to ORH based on current valuations & I continue believe the Fed will ultimately debase the US currency - they are going to print away until we run out of trees to quote Jim rogers- so I'm quite happy knowing Fairfax possesses a truely global franchise which is not 100% US centric

One fear I have had recently is that the US will not be able to continue to borrow so cheaply, that people will realise that they need a higher return to invest in treasuries given the scale of the US deficits - such a scenario will make it harder for fiscal measures to be taken by the US, harder to borrow & this could stregthen the duration and size of the recession that we will go through over the next few years as fiscal spending is limited.

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Fairfax check up
uccmal2 12/16/2008
If, they haven't sold a significant amount of bonds yet, I a...
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If, they haven't sold a significant amount of bonds yet, I am guessing that the pre-tax gain is about 1.7 B about now based on a composite of the sensitivity chart at year end 2007, and the holdings left at September. 1.2 B after tax?

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Fairfax check up
ericopoly 12/16/2008
I think its also notable that there hasn't been an announ...
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I think its also notable that there hasn't been an announcement saying that they've taken massive gains, it seems that anything larger than 400 million would normally be reported.

They took realized gains of $989m in Q1 of 2008 without an announcement.

The announcement in September was for a figure much smaller than that -- $574.5 million.

The September announcement came right after the short selling ban -- I think they were having a little bit of fun with the shorts. I wonder if there would have been any such announcement otherwise.

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Fairfax check up
smazz104 12/16/2008
"The downside of the movement in treasuries---where to inves...
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"The downside of the movement in treasuries---where to invest going forward--"

Its prob not too difficult when you look at some of the no brainer recession proof companies whos dividend and earnings yield will be killing all bonds even after factoring in discount rate.

How many entities can actually open their wallets the way the BRK, FFH can in todays climate? Crazy.

Fo us the boxing day sale will last for most part of 09.

I believe this is where the strong will just get stronger.

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Fairfax check up
Vinod309 12/16/2008
"Is it wrong to assume that the entire treasury portfolio is ...
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"Is it wrong to assume that the entire treasury portfolio is effectively a single treasury with the average yield and duration? If my memory is not wrong 3.8% and 8 years. "

Nope. Bond mutual funds calculate this all the time to give a rough idea of what a parallel shift to the yield curve does to the portfolio.

Vinod

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Fairfax check up
BearProwler6 12/16/2008
in Japan for an extended period than what! The impact of low yields on Fairfax's investment income was hi-lighted in the Q3 '08 report-- down 32.8% ...
08 results are announced. Treasury holdings are at the core of the portfolio---yes Fairfax can add to its holdings of high yielding corporates and private placements however ...
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Although the gains in Q4 will be spectacular---there is more to come! Check out yields on Japan's debt---10 year-1.38% and 30 year-2.22%! If we are truly in a Japan like scenario than we have a long way to go!

The downside of the movement in treasuries---where to invest going forward--if the yields go back up---no problem however if they remain low as they have in Japan for an extended period than what!

The impact of low yields on Fairfax's investment income was hi-lighted in the Q3 '08 report-- down 32.8% from Q3 '07---due in part to lower average interest rates on its overall portfolio. This trend will likely worsen when the Q4 '08 results are announced.

Treasury holdings are at the core of the portfolio---yes Fairfax can add to its holdings of high yielding corporates and private placements however both of these investments only go so far to replacing the yield lost on its treasury holdings!

BP6

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Fairfax check up
Partner24 12/16/2008
It's quite hard to put an estimate about their bond gains. P...
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It's quite hard to put an estimate about their bond gains. Prem said in the last FFH conference call that they were beginning to buy tax free munis and stuff like that.

Anyway, I think that we will see some interesting gains, but we shouldn't be too much optimistic. I would prefer to be pleasantly surprised than to be disapointed.

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Fairfax check up
watsa_is_a_randian_hero 12/16/2008
the 10 year will have a duration of near 8. The 7 year will ...
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the 10 year will have a duration of near 8. The 7 year will have a duration less then 7 years.

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Fairfax check up
oldye 12/16/2008
Is it wrong to assume that the entire treasury portfolio is e...
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Is it wrong to assume that the entire treasury portfolio is effectively a single treasury with the average yield and duration? If my memory is not wrong 3.8% and 8 years.

If the nominal (right term?) yield is close to 1.92 on their basket, Bonus!

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Fairfax check up
smazz104 12/16/2008
all of the above with yields most likely dropping again..
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all of the above with yields most likely dropping again..

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Fairfax check up
viking 12/16/2008
Bond gains will likely be larger than expected this quarter....
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Bond gains will likely be larger than expected this quarter. In past quarters, it was the short end of the curve that was seeing the largest declines. The long end is seeing some truly unbelievable moves and this is what juices the gains for FFH; the 30 year yield is down 133 basis points! It will be interesting to see if they harvest as they did in 2002 or not. My guess is yes. We likely will see some significant gains reported in Q4. My guess is even with NB purchase we could see cash at hold co still over 1 billion (with a bunch more to be dividended up in 2009).

Date 1 mo 3 mo 6 mo 1 yr 2 yr 3 yr 5 yr 7 yr 10 yr 20 yr 30 yr

01/02/08 3.09 3.26 3.32 3.17 2.88 2.89 3.28 3.54 3.91 4.39 4.35

06/30/08 1.60 1.90 2.17 2.36 2.63 2.91 3.34 3.61 3.99 4.59 4.53

09/30/08 1.02 0.92 1.60 1.78 2.00 2.28 2.98 3.38 3.85 4.43 4.31

12/15/08 0.00 0.03 0.28 0.50 0.75 1.02 1.50 1.92 2.53 3.29 2.98

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Jim Chanos: The Catastrophe Capitalist
claphands22 12/16/2008

a New York Post business reporter, published a series of critical pieces about Fairfax that alleged Enron-like dealings by V. Prem Watsa, the company’s CEO. " And ...

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Fairfax check up
benhacker99 12/16/2008

Depending on duration, i think the bond gains could approach...

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Fairfax check up
oldye 12/16/2008
I posted this in another thread but going by what was in the ...
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I posted this in another thread but going by what was in the 07 annual report, we probably have about 1.2-1.3 billion dollars in gains at this point.
I'm pretty sure they started selling treasuries when the rates fell below 3.5% so we probably won't have as much as 1.2 billion. I think its also notable that there hasn't been an announcement saying that they've taken massive gains, it seems that anything larger than 400 million would normally be reported.

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Fairfax check up
Dazel 12/16/2008
cardboard if you are out there...lets hear from you. disclosure: I am long Fairfax... Dazel. ...
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I have watched you guys but have not posted for awhile...thank you for hard work as always.

I am sure that some of you are wondering why I have not posted especially those posters from the good old days when bond gains were our salvation. Today the market has completely ignored them...thank you mr. market! I am completely blown away by the movement in U.S Treasuries...I have been working on some numbers and I will post in the next couple of days. I thought it was appropriate to post since in 2003 our last bond killing.. the 30 year hit 4.29 yield...today it hit 2.97%...truly incredible. If anyome has numbers on hand it would be great as you know mine will likely be different as always. I am really looking more at both value now and the forward looking earnings power of the company post cds' which I think are largely sold (I hope so!). No one else seems to care about the value here so lets get to it. Bsilly...cardboard if you are out there...lets hear from you.

disclosure:

I am long Fairfax...

Dazel.

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Maybe Prem was a bit hasty......
SanjeevParsad 12/15/2008

Prem, as he is probably one of the oldest boardmembers here and longest supporters of Fairfax. I believe he was just pointing out the huge number of adjustable rate mortgages ...

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Jim Chanos: The Catastrophe Capitalist
Nelis 12/15/2008

Well that's good news. So when Fairfax wins the court case, Chanos will be one of the few who can actually pay....

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Hedging against US-Dollar decline; mungerville
Munger75 12/15/2008

a much higher return in great businesses at great prices (like e.g. berkshire or fairfax). I thought there is something of a no-brainer to hedge the US-Dollar, but ...

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Bill Miller and the Existential Crisis of Value Investing
dengyu_the_nugget 12/15/2008

spiral several month back. I am not sure if you guys were at the fairfax dinner, the ONLY questions I asked there was about this financial and credit mess and ...

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Hedging against US-Dollar decline; mungerville
Munger75 12/14/2008

or time risk, that it doesnŽt look like a No-Brainer. Any idea how Fairfax hedge their US-Dollar risks? I read that mungerville hedges his US-Dollar risk. You ...

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Fairfax Annual Report
ericopoly 12/13/2008

It's interesting to see these retro comments. ...

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Bill Miller and the Existential Crisis of Value Investing
oldye 12/13/2008

to benefit tremendously during the recovery stage the best way is probably is just watching Fairfax Management do what they do best. It beats paying taxes :)...

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Bill Miller and the Existential Crisis of Value Investing
dengyu_the_nugget 12/13/2008
just can't survive this mess. It's ok tho, if you look at fairfax, they sort of did the same thing: CDS = their puts but they still held equity ...
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What I am saying is basically it's not HARD to see big macro problems. I don't get why there is a "I don't care about macro" rule. Rules don't work, it all depends on the circumstance and opportunity.

My basic premise is this, if you already SEE the mess the financial companies were creating, why stay in the market?

Buffet was 100% in government bonds in his personal portfolio just a while ago, and I am CERTAIN he was able to find undervalued companies when he was holding 100% government bonds. Why didn't he buy those undervalued securities? I bet because he knew this mess was going to be really messy, and he might as well wait.

There isn't a "rule" for this, but there is logic:

Say you find a company trading at 4-5 times earnings with 10% earnings growth sustainable and good balance sheet BEFORE the mess hit the fan, do you invest if that company is in an emerging market? What about if I tell you the company will have increasing earnings EVEN if economy slows?

But what about if you also know that when crap hits the fan, the way markets work is this: safest securities get bought quickly and get overvalued quickly, the rest tanks and the ladder is:

US treasuries - go up

Blue chip debt - goes down a little

Blue chip equities - goes down

Gold - probably can retain some value (perceived safety)

Average stock - goes down market average

Cyclicals - goes down hard

Emerging Market - goes down hard

So now we have a problem, we find stocks in emerging markets that we have high certainty trading at 25 cents on the dollar, and we know when crap hits the fan, emerging market tanks hard.

What do you do?

This has been the mother of all questions for me, and I think the proper way to THINK about it is this:

Without regard to TIMING, you have to admit there is an ORDER OF EVENTS.

The ORDER OF EVENTS say dips must happen before rises, and recessions must happen before the recovery. It does not say WHEN things will happen, but it says it happens IN THIS ORDER.

So because of the ORDER OF EVENTS, you should avoid situations that is detrimental from the first event, and get yourself in situations that benefits from the first event. AFTER the market has reacted to the first event, you can now put yourself in a situation where you benefit from the second event, which is recovery.

You are NOT TIMING, you are admiting somethings happen first, then some things happen after that. So you wait for the "what", regardless of "when".

In other words, patience.

I remember I posted a topic called "negative equity death spiral and prolonged bear market" and called for extreme caution a few months back.

This year I am down slightly, but I beat the market, and in retrospect, I should have paid attention to my own words. I just didn't have this ORDER OF EVENTS framework down hard enough to act properly. I was slow to convert my 25 cent dollars into put options on over-levered crap companies. My 25 cent dollars are now 10-15 cent dollars, my puts are up like 100-400% so at least they made up for most of the losses.

I don't mind holding 10-15 cent dollars, I do mind that I talk non-stop about taking caution and yet I could not let go of my 25-cent dollars and replace those bets with puts on companies that just can't survive this mess.

It's ok tho, if you look at fairfax, they sort of did the same thing:

CDS = their puts

but they still held equity positions

The question to ask is really why hold any equity positions at all when there is an army of ibankers out there messing up the entire system.

Whenever there is contradiction in logic, you outta figure out a way to resolve that conflict. And for the last month or two, this has been the conflict that has been bothering me, and to resolve it - I basically think one must add one more dimension to the investing process:

ORDER OF EVENTS. Just don't confuse this with timing.

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Fairfax Annual Report
oldye 12/13/2008

PW states unequivocally that, "Both of the above charts show ...

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Bill Miller and the Existential Crisis of Value Investing
netnet 12/12/2008

have just a few--focus investing? And some store for the really lean times--Berkshire, Fairfax?) Is it just temperament, either cultivated or genetically inherited that makes better investors? And those ...

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AIG slashing prices
oldye 12/12/2008

this experience will teach us about the importance of capital and companies like Berkshire and Fairfax will be knocking the leather off the ball for decades to come. Yahoo shows 10 ...

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Leucadia National article
leftcoast 12/11/2008

was a godsend in that regard. Twelve months ago, I had never even heard of Fairfax, which is funny because it turns out my dad went to school with Prem Watsa. :-)&...

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US T-bills
ericopoly 12/11/2008

article about a year ago after reading the "our friends at Hoisington" reference in the Fairfax annual reports. So I searched the internet, found the article, and then got anchored ...

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Fairfax's Passive Activism!
ericopoly 12/10/2008

http://www.fairfax.ca/Assets/Downloads/080307ceo.pdf While we have to disclose these positions, we should ...

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Fairfax's Passive Activism!
uccmal2 12/10/2008
This is not a new practice by any means for FFH. Robbe...
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This is not a new practice by any means for FFH. Robbert Hartog and one other FFH VP were on the board of Russell Metals. FFH employees get lots of experience as well as the passive activism role.

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Fairfax's Passive Activism!
UhuruPeak 12/10/2008
Sanjeev, Didn't we see WEB do this a few...
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Sanjeev,

Didn't we see WEB do this a few years ago before he stopped out of frustration?

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Fairfax's Passive Activism!
akomrich 12/10/2008
...We can add Bradley P. Martin on the Ridley board... http:...
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...We can add Bradley P. Martin on the Ridley board...

http://biz.yahoo.com/ccn/081104/200811040495147001.html?.v=1

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Fairfax's Passive Activism!
SanjeevParsad 12/10/2008
board of Mega Brands. Interesting how Prem takes a passive approach in the investments Fairfax takes a large stake in, but we are seeing a little more activism by either ...
advice, rather than confrontation and proxy fights! Perhaps, we will see various members of Fairfax's teams on other boards. Cheers! http://www.toynewsmag.com/news/30641/Mega-...
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Paul Rivett has joined the board of Mega Brands. Interesting how Prem takes a passive approach in the investments Fairfax takes a large stake in, but we are seeing a little more activism by either Paul or Sam joining various boards...I'd like to call it "passive activism"...you make changes through goodwill and advice, rather than confrontation and proxy fights! Perhaps, we will see various members of Fairfax's teams on other boards. Cheers!

http://www.toynewsmag.com/news/30641/Mega-Brands-shuffles-board

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20%+ return with put
ericopoly 12/9/2008

nbsp; But I gave up on it because it's easier to just own more Fairfax where they are better at bond leverage than me. The bond leverage works best ...
when you can get interest free loans -- exactly the Fairfax strategy. As long as they have a conservative bond allocation, they (despite leverage) ironically ...

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FFH convertible bonds
glider3834 12/9/2008

Fairfax said they recorded net losses on convertible bonds of $158 mil in the second quarter - ...
around 220mil pre tax. I'm trying to gauge how much more ABH exposure Fairfax has, while I hope ABH pulls through it would be good to know Fairfax's ...
net exposure. Fairfax would have made good money on their govt bonds portfolio both in the US & ...

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Chanos/FFH
SanjeevParsad 12/8/2008

they are basing the change on the financials. Chanos is simply shorting Fairfax because he does not want to admit that the circumstances have changed significantly. He'...

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FFH Q3 2008 earnings call transcript
ericopoly 12/8/2008

more efficient means of stating my point: Market believe it's worth X. Fairfax pays X+N. (N is the goodwill on the balance sheet). Market arrogantly ...
will grow book value at a FAR higher rate than the cost of debt for Fairfax. ...

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FFH Q3 2008 earnings call transcript
ericopoly 12/8/2008
these days, so why do you assume it wants to all of a sudden when Fairfax says it's worth more than market? Fairfax's entire book value is made ...
that are worth more than market prices, but don't expect the market to value Fairfax at those prices. Given that the market already does this for thinks like (well, ...
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I'm not talking about the price falling to 25. I could go get a chart, but pretty much within a couple of days it plunged from the mid-low 30 range down to 30, and that percentage drop was pretty much in like with the Yahoo overpayment. It fell to 25 well and truly after that.

Its never a good idea to let the market instruct you

There is a lot of paternalism going around, some of it is mine, but yes you are right about that.

Northbridge @ 39 isn't remotely close to a "high price,"

Nobody ever claimed it was. The market isn't assigning fair price to things these days, so why do you assume it wants to all of a sudden when Fairfax says it's worth more than market? Fairfax's entire book value is made up of tons of stocks that are worth more than market prices, but don't expect the market to value Fairfax at those prices. Given that the market already does this for thinks like (well, pretty much everything in their portfolio), then it doesn't surprise me that it will still value FFH at book value after stripping off the goodwill that is being paid for NB.

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Chanos/FFH
viking 12/8/2008

best. So what does he know about FFH? What's his thesis? Dmangan, while Fairfax had issues and teetered they have since 'got their groove back'. And we all have ...

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Chanos/FFH
SanjeevParsad 12/8/2008
there in New York when he voiced to the very first Value Investing Congress that "Fairfax is a zero!" Shai Dardashti and I both got up and asked him questions, ...
things in their offshore subsidiaries. Four years later and he's still shorting Fairfax, while the company's financials have had a massive overhaul. Chanos as he stated ...
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One needs to keep in mind that short sellers need to be even more right than longs, and Chanos is one of the best. So what does he know about FFH? What's his thesis?

This guy is one egomaniacal turkey! I was there in New York when he voiced to the very first Value Investing Congress that "Fairfax is a zero!" Shai Dardashti and I both got up and asked him questions, but his response was always that we believe that they are too leveraged and that they are hiding things in their offshore subsidiaries.

Four years later and he's still shorting Fairfax, while the company's financials have had a massive overhaul. Chanos as he stated in the article, likes to be right...no matter what the facts say, or in his case the financial statements. He will continue to plug it in the media to try and get his way.

You look at the results at Ursus, and the numbers outside of tough years for the markets have been abysmal. Including the years when he's blown the lights out, he's still underperforming the markets by huge amounts. Alot of other investors like to say that his negative correlation with the markets is what his institutional clients find attractive. That may be so, but I always thought hedge funds were there to outperform their respective indices...be it long or short!

As much as he likes to take shots at the establishment, he is distinctly a part of it. He is about as much a Wall-Street outsider as Steven Cohen. I've seen many of these guys last for a long time, and then eventually the unsavory sides of their character do show themselves. Their egos eventually lead to their undoing, and Chanos' ego is even bigger than his bank account. Cheers!

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Copper River.....Looks good on them
wilscott 12/8/2008

lost about 50% of its value in September and was down another 5% in October. Fairfax Financial Holdings Ltd . (FFH), a Canadian insurance company that is suing several hedge funds in ...
a few trading days. Rocker Partners, Copper River's predecessor fund, was dismissed from the Fairfax suit in late September after successfully arguing that Fairfax hadn't proven the fund's ...

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Maybe Chanos is next.

IN THE MONEY:Copper River Closes, Returns Funds To Investors

2 hours ago - Dow Jones Newswires

<STORY>By Carol S. Remond

A DOW JONES NEWSWIRES COLUMN

A violent market downturn and the government's decision to impose wide-ranging restrictions on short selling in September was just too much for Copper River Management.

After losing more than half of its value in the last couple of months, the Larkspur, Calif., fund is liquidating and returning funds to its investors.

The fund had originally been considering its options, including shutting down some offices and continuing on as a smaller entity. But the enormity of its losses might have been too much from which to rebound.

Fund manager Marc Cohodes declined to comment.

Copper River, a $1 billion fund that primarily bet on the declining value of stock it deemed overpriced, held large short positions in some illiquid stocks when the Securities and Exchange Commission in mid-September dramatically tightened the rules governing short selling.

Short sellers typically borrow shares to sell them and profit when the price drops.

By doing away with an exemption which was the backbone of a trading strategy that allowed funds to short stocks in the options market, the SEC effectively restricted their ability to maintain these positions and provoked a large-scale short squeeze. The SEC later temporarily banned the short selling of financial institutions whose stocks had been severely depressed by the unfolding credit crisis.

As it became harder to take or maintain short positions, hedge funds were faced with wide ranging 'buy-ins' and had to pay large premiums to cover their positions. Copper River lost about 50% of its value in September and was down another 5% in October.

Fairfax Financial Holdings Ltd. (FFH), a Canadian insurance company that is suing several hedge funds in New Jersey State court, was one of the big beneficiaries of the SEC's anti-short crackdown, with its price jumping $100 a share to $326 in just a few trading days. Rocker Partners, Copper River's predecessor fund, was dismissed from the Fairfax suit in late September after successfully arguing that Fairfax hadn't proven the fund's alleged participation in a conspiracy to depress its stock.

The SEC's anti-short-selling edict was very bad news for most funds, especially those such as Copper River whose main investment strategy was short selling. But Copper River's plight was made even worse by the bankruptcy filing by Lehman Brothers Holdings Inc. (LEHMQ).

According to people familiar with the matter, Copper River was unable to cash out derivative contracts, most likely reverse swaps, in which Lehman was the counterparty before the Wall Street company filed for bankruptcy protection. This meant that, when Lehman filed for bankruptcy on September 15, Copper River's money became tied up in the proceedings.

As the magnitude of the crisis became more apparent, prime brokers began raising margin requirements, which compounded the impact of the short-selling ban and forced Copper River and other funds already strapped for cash to put up more collateral or liquidate trading positions.

Copper River made a name for itself as an aggressive short-selling fund that didn't shy away from controversy. Former manager David Rocker, who retired in 2006, was often very vocal against companies whose stock the fund deemed overvalued. Copper River remains embroiled in a legal battle with online retailer Overstock.com Inc. (OSTK) which alleged in a California state court suit that the fund conspired to denigrate the company. Overstock.com recently settled charges with Copper River's alleged co-conspirator, research firm Gradient Analytics.

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Chanos/FFH
ericopoly 12/8/2008

be unchanged? He might also needs to win his lawsuit, which started long before Fairfax's recovery was obvious to him. Let's say he covers his shares: 1)&...

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Chanos/FFH
misterstockwell 12/8/2008
Says he is still short Fairfax--I'd like to see his losses there! http://nymag.com/news/business/52754/ from ...
among rival business writers. At Fortune, McLean wrote features about the Australian bank Macquarie and Fairfax Financial—both companies on which Chanos had significant short positions. Through McLean, Chanos had access ...
into the pages of Fortune. Fairfax Financial, a Canadian insurance company, is now suing Chanos and a group of hedge-fund ...
...
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Says he is still short Fairfax--I'd like to see his losses there!

http://nymag.com/news/business/52754/

from page 4:

"Reporters, too, have a vested interest in cultivating short-selling sources. When a short-seller uncovers fraud, it often translates into the sort of epic story that can make a business reporter’s career. After Chanos tipped Bethany McLean, then at Fortune, to the problems at Enron, she landed a $1.4 million book deal and an Oscar-nominated documentary, and she recently was hired as a contributing editor at Vanity Fair. McLean and Nocera recently nabbed a reported seven-figure book deal chronicling the fall of Wall Street.

Some believe these symbiotic interests can steer reporters to favor Chanos’s point of view over the defense of a CEO or a company’s PR department. “Everyone wants to be the next Bethany McLean,” says one anti-short corporate lawyer.

Of all the journalists whom Chanos deals with, McLean—a former Goldman analyst turned financial writer—maintains a special relationship with Chanos that is the subject of lore and jealousy among rival business writers. At Fortune, McLean wrote features about the Australian bank Macquarie and Fairfax Financial—both companies on which Chanos had significant short positions. Through McLean, Chanos had access into the pages of Fortune.

Fairfax Financial, a Canadian insurance company, is now suing Chanos and a group of hedge-fund all-stars including Steve Cohen and Third Point’s Daniel Loeb. The suit reads like a mash-up of a John le Carré novel and Den of Thieves. Fairfax alleges that Chanos and his fellow short-sellers paid for negative stock-research reports that helped drive down Fairfax’s stock price. Chanos’s allies, including Nocera, dismiss Fairfax’s charges, maintaining that the suit will have a chilling effect on legitimate criticism of companies.

But the suit paints a different picture of Chanos’s trading tactics. Throughout the summer of 2006, Roddy Boyd, then a New York Post business reporter, published a series of critical pieces about Fairfax that alleged Enron-like dealings by V. Prem Watsa, the company’s CEO. The suit claims Chanos and Loeb told Boyd, who, like McLean, is a former financial analyst, that Fairfax was “the next Enron,” and that Chanos was a background source for his reporting. Both Boyd and Chanos deny the allegations.

Whatever the case, Chanos wasn’t right this time. Unlike Enron, Fairfax hasn’t been charged with any wrongdoing, and the stock has gone up since Boyd covered the company. In September, John Gwynn, a stock analyst named in the suit, was fired by his brokerage for allegedly leaking his Fairfax research to the hedge-fund managers. Chanos is still short Fairfax and refuses to talk about the case. So far the suit is wending its way through the discovery phase in New Jersey state court, and a trial is slated for next year."

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Leucadia National article
ericopoly 12/8/2008

I like this strategy more I do too but I don't think Fairfax's strategy is to predict the future state of global markets. Their strategy is ...

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20%+ return with put
oec10210 12/8/2008

Didn't they earn 19% in equities long term at Fairfax? Not enough? How much is enough? What's the maximum that can ...

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Leucadia National article
benhacker99 12/8/2008

assuming they can continue for the next 20. I have the same reservations about Fairfax, but I don't believe FFH is anywhere near as reliant on Prem as LUK ...

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20%+ return with put
ericopoly 12/8/2008

in the insurance business. Didn't they earn 19% in equities long term at Fairfax? Not enough? How much is enough? Personally, I have a huge investment ...

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20%+ return with put
ericopoly 12/8/2008
compounding than you might otherwise think. It allows me to leave my core holding (Fairfax) alone to just grow tax-deferred which I have found very hard to do (I ...
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Another benefit of the put writing strategy used as leverage is that it gives me something to do. I can be running numbers, playing with real money, but it isn't enough to wipe me out or even seriously impair me so long as my synthetic cigar butts are with high quality companies that will eventually recover if they do trade below my strikes.

The "giving me something to do" is very important, and leads to much higher compounding than you might otherwise think. It allows me to leave my core holding (Fairfax) alone to just grow tax-deferred which I have found very hard to do (I always try to sell some at a new peak). It will be in my best interest to leave that well alone I believe, and just do my fiddling on the side with these naked cigar butts. Even if I lose a little bit on the cigar butts, I believe I will have gained over time by leaving my core holding untouched.

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20%+ return with put
ericopoly 12/8/2008
I'm not the only one who likes leverage. This place is full of Fairfax shareholders for example. They just paid $670m for more Northbridge when they might instead ...
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My own view, however, is that leverage should be used very sparingly, if at all, in the current environment. After all, as Jason's example shows, very good returns are achievable without leverage - so why take the extra risk? Do we really need to shoot for 50% p.a. returns? At 30% p.a., even $10K will grow into $2m in 20 years.

I just can't help it. I'm not the only one who likes leverage. This place is full of Fairfax shareholders for example. They just paid $670m for more Northbridge when they might instead of just used the money to pay down their leverage (debt retirement). But the potential gains from the acquisition are so alluring vs the measly return you get from paying down your debt. So, the same kind of thinking spins through my mind and I think it's what drives me to leverage. You know, Buffett once (or several times) claimed that a good investor doesn't need to use leverage to earn a great return -- yet, you find him using leverage all the time! It goes by many names be it "float" or be it "index put". All forms of leverage if you ask me -- and that's from a great investor who most certainly doesn't need to use leverage to earn a very good return. There is something in human nature that just drives people to do a little bit better -- it's not just investors either, look at the competitive/adventure seekers who literally risk their lives to scale Everest! Is it strictly logical to survival that we need to scale Everest?

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FFH Q3 2008 earnings call transcript
glider3834 12/7/2008

I think a lot of traders view Fairfax as a S&P index put by that I mean that when the market ...

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FFH Q3 2008 earnings call transcript
ericopoly 12/7/2008
P/B basis (1.035x vs 1.11x) 2) FFH owns much more of Fairfax Asia with the highest growth rate 3) More investments per share at FFH (and ...
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Given the price of investments in today's market, I think you want to go with FFH -- the float they have at runoff will finally make a regular operating profit. That wasn't the case when they were sitting in cash and treasuries.

1) FFH is cheaper on a reported P/B basis (1.035x vs 1.11x)

2) FFH owns much more of Fairfax Asia with the highest growth rate

3) More investments per share at FFH (and they are finding incredible investment opportunities right now)

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FFH Q3 2008 earnings call transcript
benhacker99 12/7/2008
equity, as of December 31, 2007, the relative ownership held by the Company is: Fairfax Asia Limited (100% owned by Fairfax, which includes a 25.9% economic interest owned by ...
the Company) , TRG Holding Corporation (100% owned by Fairfax, which includes 13.0% owned by the Company), Advent (44.5% owned by Fairfax, which ...
owned by the Company) and MFXchange Holdings Inc. (“MFX”)" So ORH owns 26% of Fairfax Asia... but the language appears contradictory given that FFH doesn't own 100% of ORH... ...
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SJ, the language is confusing to follow to track down all the minority interests.

From the ORH 10-k:

"For common stocks, at equity, as of December 31, 2007, the relative ownership held by the Company is: Fairfax Asia Limited (100% owned by Fairfax, which includes a 25.9% economic interest owned by the Company), TRG Holding Corporation (100% owned by Fairfax, which includes 13.0% owned by the Company), Advent (44.5% owned by Fairfax, which includes 8.1% owned by the Company) and MFXchange Holdings Inc. (“MFX”)"

So ORH owns 26% of Fairfax Asia... but the language appears contradictory given that FFH doesn't own 100% of ORH... but I can see how 100% could be technically correct even though economically it is not at all 100%.

Of course, all this confusion is getting resolved as we speak... first NB, next... ? :)

Ben

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FFH Q3 2008 earnings call transcript
Cardboard12 12/7/2008
I think that this will get the job done to finally unlock the value in Fairfax shares and Odyssey Re if that one remains public. A key issue with Fairfax&...
going to be the next trick or asset gain to push up book value. Once Fairfax redeploys its cash and treasuries into high yielding debt and stocks, it will become ...
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"it is likely that our operating income will increase significantly in the years to come."

I think that this will get the job done to finally unlock the value in Fairfax shares and Odyssey Re if that one remains public.

A key issue with Fairfax right now is to determine its earning power. Many of us here are trying before every quarterly release to determine how much they are going to earn. Currently, it is impossible to do since it is almost entirely dependant on asset movement and capital gains. We look at lot at CDS values and bond values and try to figure out the impact on the balance sheet.

However, this valuation process does not lead to a great trading price vs book or other metric because it is difficult to do, prone for errors and we always wonder what is going to be the next trick or asset gain to push up book value. Once Fairfax redeploys its cash and treasuries into high yielding debt and stocks, it will become much easier to figure out its earnings and investors will be willing to pay a higher price to book for the added visibility. By that time also, it is quite possible that underwriting will grow again delivering even more operating income.

Relative to treasuries and the market. I strongly encourage you to check this video from James Grant. He is doing a terrific job to explain perceived risk in the market today.

http://www.cnbc.com/id/15840232?video=948828553&play=1

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