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Fairfax Conference Call!
UhuruPeak 11/2/2008

I agree uccaml2, this is a good response to a worry I had, t...

Fairfax Conference Call!
uccmal2 11/2/2008
The underlying theme here seems to be the start of a reversa...
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The underlying theme here seems to be the start of a reversal in thinking for Prem et al. They have reduced their economic hedges, and sold the most lucrative of their CDS, probably keeping the ones that hedge the reinsurers. He has been very bearish on the economy for a long time. Suddenly they are cautiously changing their tune. At the same time we see them buying bonds, setting up debentures, and buying whole companies. FFH as Bulls?

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Fairfax Conference Call!
ericopoly 11/2/2008
This is what I find particularly interesting -- the float is...
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This is what I find particularly interesting -- the float is becoming more valuable as they move out of Treasuries into higher yielding fixed income:

We think that current spreads, it is likely that our operating income will increase significantly in the years to come.

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Watsa & LVLT
ericopoly 11/2/2008

I thought they had sold their bonds. From 2006 Fairfax Annual Report: " The principal contributors to bond realized gains were Level 3 ($121 million, ...

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Fairfax Conference Call!
Zorrofan 11/1/2008

Does anyone know when the next 13f for FFH is due to be...

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Fairfax Conference Call!
barminov   11/1/2008
50m on preferred repurchases, $62m debt repayment, $97m on dividends, $24m to increase investment in Fairfax Asia)<o:p></o:p> ·          ...
ratios getting worse all around even without cat losses. Although, net favorable developments everywhere but Fairfax Asia…getting closer to NB standard?<o:p></o:p> ·    &...
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Attached are the Q3 transcripts for FFH, ORH and NB. Below are some of my notes and thoughts on the FFH transcript and interim report. My apologies in advance for all typos and errors…had no intention of posting this originally.

Also, the FFH transcript is an initial one (basically means it’s a very rough draft) while the other two are final. I thought this error in transcription was very fitting, quoting Prem: “As Greg has said we have approximately 1.5 billion in cash and remarkable securities in our holding company”<o:p></o:p>

FFH Q3 08<o:p></o:p>

·         Don’t expect same level of gain on remaining CDS as the ones already sold. At 10-24, $9.8b notional with FV of $596m. <o:p></o:p>

·         $1.5 billion at the Hold Co. after spending $506m this year ($273 on common repurchases, $50m on preferred repurchases, $62m debt repayment, $97m on dividends, $24m to increase investment in Fairfax Asia)<o:p></o:p>

·         Using Hold. Co debt at 9-30 and Hold Co. cash after C+F dividend, Hold Co has net cash of $587m (also net of short sale and derivative obligations). Netting out other LT obligations of the Hold Co. gives you net cash of ~$400m. Credit rating upgrades should follow shortly. <o:p></o:p>

·         Covered some individual stock short positions (65% hedged versus over 100% at 9-30)<o:p></o:p>

·         Widening spreads have allowed them to move some treasuries into higher yielding tax free munis<o:p></o:p>

·         “Some excellent buying opportunities in common stocks…taking advantage of them”<o:p></o:p>

·         Runoff very quiet (if making $127m pre-tax is considered “very quiet”), downsized Euro operations<o:p></o:p>

·         Retired over $100m of sub debt. Not noticeable because started consolidating Advent (+$93m)<o:p></o:p>

·         17.5m shares outstanding<o:p></o:p>

·         Own: 70.6% of ORH, 62.2% of NB, 58.5% of Advent (paid $17.3m for additional 14%), 20% of Alliance (paid $21.6m), 19.8% of Arab Orient (paid $10.4m).<o:p></o:p>

·         Polish Re will cost ~ $70m (commitments for 47%, will close in Q1 09, conditional on regulatory approvals, buying at book)<o:p></o:p>

·         “But as emphasized in the past that any acquisition will not be at the expense of our financial position firstly and secondly in terms of the opportunities to buyback our stock, and thirdly that it has to make sense for us in terms of a return. We've always looked at return and we don't look at it in terms of going into a certain country, or if I may use the word in a strategic sense, we look at it a very simply that it has meet our return objectives.” (reason 80% of my portfolio is in FFH…need to figure out a way to have this quote pop-up whenever I consider reducing it because the valuation has reached some predetermined multiple of book…a mentally lazy and boneheaded way of valuing good insurance companies)<o:p></o:p>

·         Will consolidate Ridley (69%). Strictly portfolio investment<o:p></o:p>

·         Most AIG units too big for them<o:p></o:p>

·         Nothing on Lawsuits/SEC<o:p></o:p>

·         Underwriting ratios getting worse all around even without cat losses. Although, net favorable developments everywhere but Fairfax Asia…getting closer to NB standard?<o:p></o:p>

·         In 2008, CDS gains of $1240.5m, short equity and equity index positions gains of $1,024.6m (no longer just a CDS story on investment side). Moving some of the bond portfolio into higher yielding bonds and “excellent opportunities in common stocks” = rocket fuel for the next 5-10 years <o:p></o:p>

·         BVPS of $263.68 (not including excess of FV over carrying value of equity investments of $362.6m or another ~$20). At more than 50% haircut on value of ICICI, safe to say BVPS is around $270<o:p></o:p>

·         Corporate overhead was a positive $470m pre-tax during 2008<o:p></o:p>

·         Approximate cost to take ORH and NB private (current market prices and exchange rate) = $700m + $540m CAD ($450m USD) = $1,150m USD * 30% premium = $1.5b. I hope people keep using mentally lazy valuations like P/B multiples and ignore things like investment gains, quality of management, and the fact that these companies are positioned to grow earnings at a remarkable rate so FFH can actually bring them back into the fold relatively soon and at a low price. <o:p></o:p>

The call on the financial meltdown was the best I’ve ever seen and I don’t think they could have possibly positioned the company better. Congratulations! I don’t think there is a single management team out there that deserves these successes and those to come over the next 5-10 years more than these guys.

Cheers!

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Fairfax Conference Call!
(deleted) 11/1/2008
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Watsa & LVLT
tiddman1 10/31/2008

LVLT. <<< Is that right? It looks like Southeastern owns about 453M and Fairfax now owns about 158M for a total of 611M. That's less than 40% of ...

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Fairfax Conference Call!
oldye 10/31/2008

anyone have any info on the alliance investment in Dubai?

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Fairfax Conference Call!
oldye 10/31/2008
1-866-357-4208.
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1-866-357-4208.

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Fairfax Conference Call!
smw3971 10/31/2008
It's a different number for the CC recording. From the PDF w...
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It's a different number for the CC recording. From the PDF where they announced the CDS results last month: 1-800-357-4208.

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Fairfax Conference Call!
linkmont1 10/31/2008
i'll wait for the transcripts. thnx again, guys!
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i'll wait for the transcripts. thnx again, guys!

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Fairfax Conference Call!
smazz 10/31/2008
"but does ffh archive their cc's & post them for a tem...
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"but does ffh archive their cc's & post them for a temporary amount of time to their website?"

Linkmont,

you can usually listen to the CC from the 1-800# for a while after a the fact in addition, someone usually posts the transcripts on seeking alpha site.

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Fairfax Conference Call!
Partner24 10/31/2008
It was a very interesting conference call. Some questions we...
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It was a very interesting conference call. Some questions were quite good (and the answers as well).

If I've heard well, they are deploying some of the cash into municipal bonds and equities.

On big acquisitions, never at the expense of a sound balance sheet and while compare that to the opportunity of buying back their own stock.

In M&A, no strategy, it has to make sense on the financial (return) point of view.

I'm lucky that the conference call is on a silent mode. You would have heard some "Oh yes!" "Yes sir!" and stuff like that from me!

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Fairfax Conference Call!
uccmal2 10/31/2008
seeking alpha often has a written transcript later on. ...
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seeking alpha often has a written transcript later on.

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Fairfax Conference Call!
linkmont1 10/31/2008
thnx, sfvalue. but does ffh archive their cc's &a...
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thnx, sfvalue.

but does ffh archive their cc's & post them for a temporary amount of time to their website?

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Fairfax Conference Call!
watsa_is_a_randian_hero 10/31/2008
equity portfolio went from over 100% hedged to 65% hedged.
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equity portfolio went from over 100% hedged to 65% hedged.

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Fairfax Conference Call!
Sfvalue1 10/31/2008
1-800-475-0368 Code: FAIRFAX Q&A about to start ...
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1-800-475-0368

Code: FAIRFAX

Q&A about to start

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Fairfax Conference Call!
linkmont1 10/31/2008
i'd like to but cant find a link to the cc.
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i'd like to but cant find a link to the cc.

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Fairfax Conference Call!
SParsad 10/31/2008
If you aren't listening, then you probably should be. ...
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If you aren't listening, then you probably should be. At the end of Prem's review of the quarter, he made some simple points that were just plain awesome:

- They believe the insurance markets could turn and they are prepared better than just about anyone else...my paraphrasing here!

- Their equity hedges made money in October and they took some profits, while maintaining an equivalent amount of nominal coverage based on September 30th

- For the first time in a long-time, they are finding great opportunities in bonds and equities and are taking advantage of them

- Prem thinks with the way things are set up, they will make alot of money going forward for shareholders! He was quite emphatic here.

Cheers!

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FFH results are out
mills-man 10/31/2008

dividend, consisting of $191.2 of cash and $158.8 of securities, were distributed to Fairfax. ...

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FFH results are out
mills-man 10/31/2008
regularly scheduled examination of the 2003 and 2004 U.S. Federal income tax returns of Fairfax’s U.S. subsidiaries included in Fairfax’s U.S. consolidated tax group, including OdysseyRe ...
closed. As part of the examination, the IRS reviewed the purchase of OdysseyRe shares by Fairfax in March 2003 and the issuance by Fairfax of debentures exchangeable into shares of OdysseyRe ...
shares and issuance of exchangeable debentures or the inclusion of OdysseyRe and its subsidiaries in Fairfax’s U.S. consolidated tax group as a result. A shot in the short teeths. ...
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The Internal Revenue Service (IRS) completed its regularly scheduled examination of the 2003 and 2004 U.S. Federal income tax returns of Fairfax’s U.S. subsidiaries included in Fairfax’s U.S. consolidated tax group, including OdysseyRe and Crum & Forster. The 2003 and 2004 taxation years for these subsidiaries are now closed. As part of the examination, the IRS reviewed the purchase of OdysseyRe shares by Fairfax in March 2003 and the issuance by Fairfax of debentures exchangeable into shares of OdysseyRe in payment for that purchase. No changes were made to the consolidated 2003 and 2004 tax returns with respect to that purchase of shares and issuance of exchangeable debentures or the inclusion of OdysseyRe and its subsidiaries in Fairfax’s U.S. consolidated tax group as a result.

A shot in the short teeths. Another thesis from our short friends without value.

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FFH results are out
oldye 10/31/2008
Through ICICI Lombard Fairfax effectively has 3% market share growing @ 30+% a year. This is a very valuable asset....
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Through ICICI Lombard Fairfax effectively has 3% market share growing @ 30+% a year. This is a very valuable asset.

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FFH results are out
Partner24 10/31/2008
is not great. - CDS gains are stellar. Thank you very much for those at Fairfax who are behind this! - Some debt have been eliminated and our balance sheet is ...
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Well, that's a complex financial statement, but here are my preliminary observations:

- Overall results are great I mean, who can claim to have preserved their book value per share since the beginning of 2008. AIG is worth less than FFH now!

- Underwriting results are bad. Oh, I know that "if hurricanes haven't happened, our results would have been", but hurricanes are real and happened sometimes since I'm a shareholder of the business, so these are not that much exceptional loss items. No head in the sand please. This is not great.

- CDS gains are stellar. Thank you very much for those at Fairfax who are behind this!

- Some debt have been eliminated and our balance sheet is improving. Oh, that is so much a relief! I will never forget our lean years and an improving balance sheet is like music in my ears!

- Share repurchases. I think it was well balanced with the first priority that we have as to have a forever balance sheet.

Cheers!

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FFH results are out
oec10210 10/30/2008
more than stated book value - a fact that seems lost on the investment community given Fairfax's share price I took a look at ICICI Lombard's financial statements previously ...
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Am I right in saying that book value of $263 was calculated using a weighted avg of 18.1 mil shares but if we divide shareholders equity of 4.72 bil by 17.52 mil shares , I get book value per share of $269 - is that correct.

You have to subtract preferreds from equity first. Equity = 4,620 will give you the $263 number. BVPS is always computed using outstanding shares, not weighted average.

Great quarter overall with $25 p/share in net profit

It should be noted that headline EPS of $25 does not take account of Other Comprehensive Loss. Comprehensive income of $225.6m is the more appropriate number to look at - gives net income per share of $12.44. This also explains why BVPS is only $263 instead of $275 (since Q2 BVPS was $250).

The hard market is about turn in the reinsurance space starting Jan 1

Not sure what you base this on but I would wait for it to happen before counting our chickens. Last comment from Buffett that I remember was that he expected weaker underwriting results for at least a few years. I would take his judgment over other insurance executives who may be less objective in their assessment.

ICICI Lombard is a valuable off balance sheet asset worth much more than stated book value - a fact that seems lost on the investment community given Fairfax's share price

I took a look at ICICI Lombard's financial statements previously and couldn't quite figure out how the valuation is justified. Not saying that the number is wrong but it seems a lofty valuation given its current earnings.

Conclusion: The numbers are good considering how everyone else in financial services is doing but not as good as the headline numbers suggest. The one thing that is possible is that they may have taken advantage of the good investment results to strengthen the insurance reserves - I believe Prem said something about the other operations attaining the Northbridge standard. May explain the rather ugly CRs.

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FFH results are out
glider3834 10/30/2008
transactions which are still valued using “good times assumptions”, to quote Prem Watsa (CEO – insurer Fairfax Financial (FFH)). There are further big writedowns to come, without a doubt. The problems in ...
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hi smazz

I agree with you regarding credit raters & they need greater regulation - they operate with an implicit conflict of interest also

I wrote this article earlier this year & copied below , I have been lazy of late & not posting to my website regularly but have been preoccupied with other work.....

cheers

"Thoughts on the credit market and excessive leverage" (March 19 2008)

Despite the Federal Reserve’s recent cutting of interest rates, it is difficult to see distressed credit market conditions significantly improving until the dirty laundry hidden throughout the financial community is well and truly brought into the open. I believe it will take several years. Banks are still sitting on enormous amounts of high yield / LBO debt along with credit card, home equity auto loans that have been packaged into numerous financial structured transactions which are still valued using “good times assumptions”, to quote Prem Watsa (CEO – insurer Fairfax Financial (FFH)). There are further big writedowns to come, without a doubt.

The problems in the financial system are a function of excessive leverage. Lehman brothers(LEH) recent earnings release was celebrated today on Wall Street as they beat earnings expectations and that’s all Wall Street cares about. The fact is Lehman is leveraged to the hilt, at 31x capital. They may not suffer Bear Stearns(BSC) fate today or tomorrow, but mark my words, any company ,whether its run by the finest CEO in the world ,will run into trouble eventually when it uses that kind of leverage. Wall Street banks are leveraged on average 20x their capital. Financial commentators are at great pains to point out whether an investment bank has avoided “subprime” or not, that is precisely not the issue. The issue is debt. When an investment bank or financial institution is leveraged at over 20x capital, they only need to wipe out 5% of their assets to destroy their capital. Whether its subprime today , tomorrow it could be hedge fund investments that went sour, derivatives trades, commodities speculation, LBO debt.

I believe Ratings agencies should reward companies that have less debt & penalize companies that have too much debt. I believe debt should be the number one criteria before any rating is issued. Moodys has a rating of A1 on Lehman Brothers, a company with $360 billion in short term debt & $200 billion in long term debt and just $24 billion in shareholders equity. Lehman brothers could not have achieved that level of debt raising without the rating agencies approving nods. Moodys is kidding themselves if they they think Lehman brothers is A1. Similarly Bear Stears sported a A rating before it effectively went bankrupt last Friday. The ratings agencies have been a key contributor to the massive amount of debt leverage being used in the world, the more debt that gets issued the more they make! I’m sure they (S&P,Moodys & Fitch) have all been handsomely paid for the debt issued by Bear Stearns, Lehman brothers and others. The system is truly a mess and the Rating agencies, investment bankers along with many other co-conspirators have lined their pockets.

The recent big interest rate cuts from the Federal Reserve amount to giving a drug or “debt” addict more prescription pills. Lets deal with the debt addiction & work towards a financial system built on responsible amounts of debt supported by Ratings agencies that penalise excessive use of debt by companies. Debt is the problem in my opinion and it needs to be addressed.

Disclosure: I own shares of FFH

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FFH results are out
glider3834   10/30/2008
small during the quarter  - then I realised  why - its because Fairfax brought 403 mil in gains into the P&L Great quarter overall with $...
25 p/share in net profit plus Fairfax has the benefit of consolidating Advent capital into its balance sheet , they took a nice $...
more than stated book value - a fact that seems lost on the investment community given Fairfax's share price The hard market is about turn in the reinsurance space starting Jan ...
...
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"At September 30, 2008 there were

17,521,375 common shares effectively outstanding."

Am I right in saying that book value of $263 was calculated using a weighted avg of 18.1 mil shares but if we divide shareholders equity of 4.72 bil by 17.52 mil shares , I get book value per share of $269 - is that correct

Also an observation on realised gains during the Sep08 Qtr

total return swaps 403 other than temp impairs (171) & credit swaps (595) gives around 827 plus other gives teh 850mil figure

I hope I'm not stating the obvious but I thought I would break this down for everyone because I was surprised to see that total return swap unrealised gains were so small during the quarter  - then I realised  why - its because Fairfax brought 403 mil in gains into the P&L

Great quarter overall with $25 p/share in net profit plus Fairfax has the benefit of consolidating Advent capital into its balance sheet , they took a nice $350 mil to the Holdco from C&F which gives them even more cash to play with , debt is down also

A credit rating upgrade must be on the cards

ICICI Lombard is a valuable off balance sheet asset worth much more than stated book value - a fact that seems lost on the investment community given Fairfax's share price

The hard market is about turn in the reinsurance space starting Jan 1 so whereas investment gains have been driving Fairfax's results til now, I would expect UWP into 09 to start to pick up & operational results to start looking good

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The Man Who Beat The Shorts
kumar 10/30/2008

com/forbes/2008/1117/114.html In the current economic meltdown Prem Wasta and his Fairfax Financial are among the few winners. ...

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Volkswagen Short Squeeze
mills-man 10/28/2008

I hope it will happen with Fairfax. They control the share price for so long. ...

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FFH unwinding S&P Put
tiddman1 10/27/2008

because they had access to well-heeled private institutional investors. This includes Longleaf, Legg Mason, Fairfax, but probably includes others that we haven't heard about such as Kiewit. They are ...

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10 observations on the market
glider3834 10/26/2008

nbsp;was in the 1930s - a 50 year opportunity this could very well be. 5. Fairfax have been selling their credit default swaps - expect more sales this quarter - although they will ...
keep enough to protect their recoverables. Fairfax know te tide will turn eventually. I also expect Fairfax will start to unhedge ...

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SFK Pulp
gordoffh 10/23/2008

With the volume today n SFK might that be Fairfax adding to their position? ...

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i am amazed
SanjeevParsad 10/23/2008

a little boy on Christmas morning! Can you imagine the amount of cash Fairfax can put to use right now? Cheers! ...

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Reminded of What Francis Told Us
653211 10/22/2008

At our pre Fairfax meeting dinner at Joe's in April, I am now reminded of what Francis told ...

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FFH - ORH Earnings For Halloween
glider3834 10/22/2008

I wonder what the end game will be for Fairfax & Odyssey re They are starting to get close to the 80% level ( must ...
the remaining shareholders or continue with the share-buybacks. What are the rules if Fairfax passes 80%, at what percentage level would they have to make an offer ...
guess it could be like Berkshire & Wesco where Berkshire owns 80%. I have Fairfax & Odyssey re shares. I sold my ORH shares & bought FFH in teh 220s ...

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Van Hoisington Q3 Report
oldye 10/20/2008

Its also very interesting to note that Fairfax Financial gets some of its graphs for presentations from these guys....

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Anyone who's optimistic should read this
Dazel 10/18/2008

view. They have also put their money where their mouth is. Most here know of Fairfax and their views as well. Buffett of course is buying right now when everyone ...

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Should we go to cash, build a bunker and start hoarding food? That is what leters like the ones above make you feel like doing. These guys have been very smart and I appreciate the knowledge and point of view. They have also put their money where their mouth is. Most here know of Fairfax and their views as well.

Buffett of course is buying right now when everyone is runing for the hills. I have a couple of views to add for the sake of argument. Yes i believe there will be more pain... more for some than others..however.

Paulson figured out that $750 bilion was not near enough last week as did the other central banks...so they decided to use the multiplier effect. Buy equity in the banks so they can lever the money 25 times. To many this now seems like a crazy number! This what banks do. The above letter illustrates that book values are not real. Well in a banking crisis where liquidation is present they look like they are right. The other chart is the stagerring $29 billion worth of lost equity values...Where did they go? While I agree the Lehman Brothers failure was outright stupidity on the Fed...it killed inflationary taxes on consumers...

For fun.

Ben Bernanke's thesis on the great depression was that credit contraction was the problem as the money supply dropped by a third from 1929 to 1932. They are going the other way this time as the printing presses must be smoking...

The $250 billion first injection will add $6.25 trillion in lending to the banks in the U.S...they could double this with the stroke of a pen...The other central banks are doing the same. what if it worked?

Those that are short like Hayman are on the run...they would drive a massive stock rally in the other direction just as we are seeing on the liquidation side now. At first they may think they are still right but when a market keeps going so do their losses. This however, has extra steam because those that were running from the drop are now leaping back in trying to catch the rising market which only adds gas to the fire against those short.

What are the effects?

Well all of sudden the banks are well capitalized...

The $29 trillion in lost equity is found to some degree...call it an extra $14 trillion in added equity from the rise in the market add on the $20 trillion+ in lendable funds form the central bankers or more depending on how much they end up putting in!

Oh yeah 1% interest rates on top of that might help a little...

My point is that the argument above would be extremely scary to those that are betting everything short...just as the longs are terrified by the great depression that is most certainly coming!

It would be fun to be a prof at a university for this economic stuff however, Buffett will win because he is buying companies for all seasons.

By the way the cds' spreads are not as high as you might think now that the world is ending!

In the words of the great Benjamin Graham "this too shall pass"...anyone who tells you when is lying.

Dazel.

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Fairfax and AbitibiBowater Inc ownership increase
653211 10/18/2008

I believe this is just the regulatory statements of a payment...

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Fairfax and AbitibiBowater Inc ownership increase
masterP3250 10/17/2008
A bunch of sec postings regarding AbitibiBowater Inc. Looks ...
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A bunch of sec postings regarding AbitibiBowater Inc.

Looks like an increase in ownership along with a convertible offering.

http://www.sec.gov/Archives/edgar/data/915191/000090956708001065/o42175sc13dza.htm

http://www.sec.gov/Archives/edgar/data/915191/000120919108056822/xslF345X03/c76103_4x0.xml

http://www.sec.gov/Archives/edgar/data/915191/000120919108056824/xslF345X03/c76104_4x0.xml

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Buy American, I am (W.E.B in the nytimes)
aberhound 10/17/2008

he does not start positioning for this possibility I will have to sell off my Fairfax. ...

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Buy American, I am (W.E.B in the nytimes)
linkmont1 10/17/2008
at best it is levered 1.5-1 times. Prem is buying for Fairfax, which is levered 4.5-1 times. Losses incurred by Prem affect Fairfax signficantly.&...
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<<Hi Linkmont, as I had mentioned a little while ago, their opinions aren't really opposed to one another. WEB is buying in his own personal portfolio, which is most likely unlevered, or at best it is levered 1.5-1 times.

Prem is buying for Fairfax, which is levered 4.5-1 times. Losses incurred by Prem affect Fairfax signficantly. A similar loss in Warren's portfolio impacts him far less...>>

thats true, sanjeev. its possible that i am under appreciating this dynamic. cant help myself tho.

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Buy American, I am (W.E.B in the nytimes)
linkmont1 10/17/2008
got a long ways to go down before that happens," says Prem Watsa, chairman of Fairfax Financial Holdings. Uh-oh. "We think there's a significant recession coming, long and deep. ...
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uccmal, i agree with you that i might be misreading prem's current investment posture. but i'm just trying to take the the things that i see him say in recent articles like with the globe & mail? a couple of weeks ago at face value,. he said "
"Stock markets are not down 50 per cent in Canada or the United States from their highs. They've got a long ways to go down before that happens," says Prem Watsa, chairman of Fairfax Financial Holdings.

Uh-oh.

"We think there's a significant recession coming, long and deep. It's going to spread all across [the world] ... It's very difficult to not be caught by it."

maybe his opinion has changed significantly since the article. after all, the s&p 500 is down nearly 40% from its highs. he mentioned 50% down from the highs not being breached yet...certainly we are not too far off. but how pessimistic is he & how finely will he try to cut it?

i do know that i am a nervous nellie with regard to his recent increase to an 8 year plus avg duration in ffh's us treasury bond portfolio. i see no value in long us treasuries unless one is predicting outright deflationary armegeddon. and that maounts to having a macro view that trumps ones objective assessment of a healthy margin of safety when prospecting for value, imo. so tho i am long both ffh & orh, i have kept my positions much smaller than i would have otherwise.

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Buy American, I am (W.E.B in the nytimes)
SParsad 10/17/2008
at best it is levered 1.5-1 times. Prem is buying for Fairfax, which is levered 4.5-1 times. Losses incurred by Prem affect Fairfax signficantly.&...
hold lots of bonds and lots of equities in Berkshire. I would think that Fairfax is buying but cautiously. Cheers! ...
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whats most interesting to me is the unequivacable bullishness of web in the face of all the fear , panic, & shellacking of equities in the u.s. & across the world vs the continued cautiousness, gloom, & capital preservation mode that another of this boards favs, prem watsa, has recently expressed!!

its a fascinating study of 2 diametrically opposite viewpoints by 2 of the smartest ivestors out there. i dont have any clue as to how c&s at leucadia (to single out another dynamic duo) have been positioning their investments in the thick of this credit crisis selloff. we should see soon enough.

Hi Linkmont, as I had mentioned a little while ago, their opinions aren't really opposed to one another. WEB is buying in his own personal portfolio, which is most likely unlevered, or at best it is levered 1.5-1 times.

Prem is buying for Fairfax, which is levered 4.5-1 times. Losses incurred by Prem affect Fairfax signficantly. A similar loss in Warren's portfolio impacts him far less...both by value and in what he can continue to do. Just like our own portfolios.

Notice how Buffett has not said that he would be 100% in stocks in Berkshire's portfolio. That is because Berkshire operates with a 2.5-1 times asset to equity leverage and their ability to write insurance could be affected by losses. He will continue to hold lots of bonds and lots of equities in Berkshire. I would think that Fairfax is buying but cautiously. Cheers!

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Fairfax Owns 11.13% of Jazz Air Income Fund!
oldye 10/16/2008

Looks like they pay a .0838 per month dividend or 1$/year...g...

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Fairfax Owns 11.13% of Jazz Air Income Fund!
smazz 10/16/2008
shows how much I know about the industry ...
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shows how much I know about the industry

I thought Jazz went tits up... I honestly did lol.

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Fairfax Owns 11.13% of Jazz Air Income Fund!
glider3834 10/16/2008
haven't looked closely at their financials but I guess a low...
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haven't looked closely at their financials but I guess a lower oil price will be good for airlines, I know Jim Rogers has been buying airline companies

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Fairfax Owns 11.13% of Jazz Air Income Fund!
SanjeevParsad 10/16/2008
Press release by Fairfax on their increased ownership: http://www.fairfax.ca/Assets/Downloads/Press/fpr2008-10-16.pdf Cheers! ...
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Press release by Fairfax on their increased ownership:

http://www.fairfax.ca/Assets/Downloads/Press/fpr2008-10-16.pdf

Cheers!

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Pabrai- a few thousand points...
SanjeevParsad 10/16/2008

go for cheap business not good business in cheap value. Hmmm, he's owned Fairfax longer than 90% of boardmembers here. I'm wondering why he didn't ...

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Pabrai- a few thousand points...
mills-man 10/16/2008
think the capital would be safe, not the case for every insurer. Reducing Fairfax on CDS only don't allow to see the future. They build solid ...
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Without those CDS FFH would be trading at 80/share right now

Since 1999 Prem is bearish on USA( 10 years now!), CDS are just a recent addition in his long bearish view. They bought some stock scrap and i never understand their position in commodity sector (i'm rarely touching this sector). But they are in because they can hedge their stock position. They only bought gvnmt bond since 1999(others bonds are falling) and are patient to reallocate their capital in front of pressure. The stocks they bought were probably on non-steroids earnings assumptions. I don't know the range the stock would be trading without CDS growing gains, but i think the capital would be safe, not the case for every insurer. Reducing Fairfax on CDS only don't allow to see the future. They build solid insurance company, reduce non-interest and can wait to redeploy.

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Discrepancies in price to BV FFH-ORH doesnt make sence
dengyu_the_nugget 10/15/2008

of companies whose P and IV are large now.... Sure one could focus on Fairfax but I am pretty sure value investors are all going through a load of stuff ...

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Discrepancies in price to BV FFH-ORH doesnt make sence
oldye 10/15/2008
poised to be profitable during a very tough period for their competition. Both Berkshire and Fairfax should be trading at a huge premium to book, perhaps larger than ever. The moats ...
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What doesn't make sense is the huge discrepancy between P and IV for both companies. They've grown by leaps and bounds and are poised to be profitable during a very tough period for their competition. Both Berkshire and Fairfax should be trading at a huge premium to book, perhaps larger than ever. The moats are clearly defined, the assets are easy to value, the truth must be that Mr. Market isn't simply not paying attention.

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Fairfax's Prem Watsa: Not Buying Stock
dengyu_the_nugget 10/14/2008

bradan - goog points. I am giong with 60% long...

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Fairfax's Prem Watsa: Not Buying Stock
bradankprog1 10/14/2008
I must say I agree with Prem regarding a calmer atmospher on...
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I must say I agree with Prem regarding a calmer atmospher on Wall Street. It'll probably last years as the baby boomers will not soon forget the lesson this spanking taught them. As for Buffett I have noticed since the REAL crisis started he has been rather sanguine regarding his enthusiasm for stocks. He merely commented regarding fear being at high levels, but he took Preferred.

We have to remember:

1) Leveraged hedge funds will be a RELIC.

2) Private Equity - a passed fad.

In studying history the most interesting lesson was from Peter Lynch who after taking over Fidelity Magellan observed that as the fund gained investors redeemed, happy to have gotten their money back whole. We'll see a similar phenomenon. The market will now face significant headwinds. Wall Street will become a backwater. Stocks an instrument of 'speculators'. But all the while corporate values will be growing. In time inflation and compounding will produce a WONDERFUL buying opportunities. That process is already well underway.

Wake me up when Business Week proclaims the death of stocks, Forbes asks where the buyers are, the Wall Street Journal covers sports or commodities, CNBC has 10 viewers, and Warren Buffett is scorned as that bastard that talked them into buying stocks. Joking regarding Buffett..

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Fairfax's Prem Watsa: Not Buying Stock
dengyu_the_nugget 10/13/2008
I would care less if the fall is 20%/30%/50% or more. ...
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I would care less if the fall is 20%/30%/50% or more. It's whether they really are cheap relative to future economic prospects.

Even now I believe one could make as much money on the short side as one could on the long side - that would not be the case if stocks fell another 20%, then I'd just dump it all into fundementally improving cheap stuff, turn off my computer for 2 years and go fish haha.

But I would use this bounce to shift some strategies...to be able to re-enter some shorts...I covered last friday after I woke up and saw -1000 on the dow lol...

Lots of companies will go bk - this cannot be changed. Long or short - play whatever you feel comfortable with. I think I really am liking the kind of opportunities that are showing up, both on the long and short side.

You could argue that a lot of long plays the last 6-12 months (exclusive of FFH/ORH) were kind of stretched since the economy was going to do VERY badly. But now, there are VERY clear long winner AS WELL as VERY clear short winners. So this is the perfect time to have well-hedged fund - short the BK-eminent stuff, and long the stuff that completely got sold off for no good reason.

I think a long/short portfolio cannot have a better situation than what currently exists.

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Fairfax's Prem Watsa: Not Buying Stock
philassor 10/13/2008
The point is that if you buy now ( the right stocks) you will...
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The point is that if you buy now ( the right stocks) you will be handsomely rewarded 5-10 years down the line regardless weather the market falls another x % in the near future. Yes you might miss the opportunity to buy lower but who can really predict the market? And why be too greedy when you have one good offer.

one depreciated cent's worth.

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Fairfax's Prem Watsa: Not Buying Stock
ericopoly 10/12/2008
We were within 6% of the 50% mark on Friday, then the market...
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We were within 6% of the 50% mark on Friday, then the market recovered.

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Fairfax's Prem Watsa: Not Buying Stock
glider3834 10/12/2008
for the record also -40% is the worst year on record YTD - w...
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for the record also -40% is the worst year on record YTD - worse than 1929 even

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Fairfax's Prem Watsa: Not Buying Stock
glider3834 10/12/2008
i think its relevant to point out that teh S&P has falle...
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i think its relevant to point out that teh S&P has fallen about 18% since this article was written - 40% down now we're getting close to 50% , I think Prem may be temptedto start dipping his toes.

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Fairfax's Prem Watsa: Not Buying Stock
Dual_Bid 10/12/2008
"You'll see the average pension fund going down to 30 per c...
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"You'll see the average pension fund going down to 30 per cent, 40 per cent equity allocation. ...'Stock' will be a bad word"

Don't know if any of you out there see this, but here, in Israel, Stock became a bad word about 6-8 months ahead of the big September-October fall. In the past 12 months you could see a clear trend of mutual funds changing names to "ABC (Without Stocks) Fund".

It's nice to hear those famous lines - like the Magazine Headline indicator, or End of Stocks indicators, but truth is they are not that reliable. They make the speaker sound smart though (and indeed he might be smart, but not because of these lines).

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Fairfax's Prem Watsa: Not Buying Stock
smazz 10/12/2008
Prem already made a shit load of $. My interpretation ...
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Prem already made a shit load of $. My interpretation is he now will focus on capital preservation and treasure hunting.

He's already stated hes leaving the rest for those "smarter than us".

Hes also mentioned he doesnt want to tip his hand when he is buying back stock or bonds so as not to have them run in price.

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Fairfax's Prem Watsa: Not Buying Stock
alertmeipp8 10/12/2008
Prem is quite different than Buffet in this crisis. Buffet ha...
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Prem is quite different than Buffet in this crisis.
Buffet has been buying. I wonder who is right.

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Fairfax's Prem Watsa: Not Buying Stock
DieterMatuschek 10/12/2008
http://www.theglobeandmail.com/servlet/story/GAM.20081007.RD...
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http://www.theglobeandmail.com/servlet/story/GAM.20081007.RDECLOET07/TP

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Inflation, TIPS, etc.
aberhound 10/12/2008

We are returning to a multi-polar globalized world. Think of the Fairfax presentation chart showing low long term bond rates during periods of a global savings market. ...

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XL CDS - more money for Fairfax
oec10210 10/11/2008

The $3.5b figure I mentioned relates to the unsecured colla...

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XL CDS - more money for Fairfax
oec10210 10/11/2008
a panic the least I can do is try and see a positive spin for Fairfax Glider, it's clear that you understand FFH and the insuirance industry very well. ...
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Then a good amount of the weaker recoverables are hedged with collateral.

I know. The $3.5b figure I mentioned relates to the unsecured collateral. Nevertheless, your points about the buybacks and short equity positions makes good sense.

I certainly hold FFH also not just for their CDSs but because I believe in the company and the people running it

On a down day like yesterday when everyone is in a panic the least I can do is try and see a positive spin for Fairfax

Glider, it's clear that you understand FFH and the insuirance industry very well. However, others may just look at the potential gains without taking into account the other side of the coin. To me, margin of safety investing means taking the more conservative view - that's why I thought to point out that some of the CDS gains should not be counted as gains.

Cheers.

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copper river down 55%
ericopoly 10/10/2008

Some Fairfax shareholders may find this amusing (in a schadenfreude way). I find it a bit ...

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Some Fairfax shareholders may find this amusing (in a schadenfreude way). I find it a bit unexpected that short sellers could be doing so poorly.

http://money.cnn.com/2008/10/10/news/economy/river_boyd.fortune/index.h

some excerpts:

A devastating combination of counter-party failure, sudden regulatory edicts and margin calls conspired to turn the fund's performance on its ear, leading to a 55% loss in just two weeks.

The recent problems for Copper River began in the middle of last month as Lehman Brothers began to totter. According to Copper River investor and another person close to the fund, Copper River had put on a series of derivative trades with Lehman as its counter-party.

When it became apparent that Lehman was in serious straits, Copper River unwound the trade and awaited the return of the capital it put up as collateral. But Lehman filed for bankruptcy September 15 and Copper River's money became tied up in the firm's mounting court battles with creditors.

On top of that, as Lehman unwound its own internal hedges to the Copper River trades, its trading desks bought shares of these companies, driving up their prices and leading to losses for Copper River.

That was bad enough, but on September 19, the bottom fell out for the fund. That was when the Securities and Exchange Commission ordered unprecedented restrictions in short sales, including the banning of all short sales of financial companies (and soon expanded to dozens of non-financial companies).

As prices in those stocks shot upwards, Copper River was forced to cover - or buy back - some of its positions at steep losses. The rising stock prices also led to a series of margin calls (demands for additional cash collateral to be deposited in a margin account) from Goldman Sachs, Copper River's prime broker. A Goldman spokesman did not return a call seeking comment.

Copper River's Cohodes declined to comment. Yet it must have been galling for Cohodes to watch former Lehman chief executive Dick Fuld castigate short sellers when Copper River's own fortunes were tied to Lehman's sinking ship.

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History of bear markets
dfcanuck 10/10/2008

deeper buying opportunites at year-end. The question will come - do I sell some Fairfax to buy many deep value bargains that have/will emerge? ...

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XL CDS - more money for Fairfax
uccmal2 10/10/2008

Hi Alertmeipp, Folks are interested in the CDS because it is...

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XL CDS - more money for Fairfax
glider3834 10/10/2008
oec , I believe that Fairfax will continue to maintain adequate CDS to protect their recoverables They also take collateral ...
a panic the least I can do is try and see a positive spin for Fairfax As for buying XL alert - I have taken a look at their balance sheet ...
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oec , I believe that Fairfax will continue to maintain adequate CDS to protect their recoverables

They also take collateral on their recoverables

I certainly hold FFH also not just for their CDSs but because I believe in the company and the people running it

On a down day like yesterday when everyone is in a panic the least I can do is try and see a positive spin for Fairfax

As for buying XL alert - I have taken a look at their balance sheet and did enough head-scratching to know I don't really know what they have there. They own a lot of asset backed securities & CDOs which are hard to value and they have large reinsurance liabilites on CDOs they have insured . There is no way I'd buy XL because I can't understand their blance sheet.

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XL CDS - more money for Fairfax
ericopoly 10/10/2008
we should not ignore the possibility that the ev...
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we should not ignore the possibility that the ever-widening turmoil must be getting to the point where it might impact on FFH reinsurance recoveries

I read that Prem is not too concerned about his counterparties here given the large amount of equity that is being returned in the buyback program. If he was bulding an Ark to survive a counterparty reinsurance collapse, he wouldn't be returning the cash would he? Perhaps he has other hedges in place -- there's that $1b equity short position for example, potentially for hedging weaker reinsurance counterparties.

Then a good amount of the weaker recoverables are hedged with collateral.

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XL CDS - more money for Fairfax
alertmeipp8 10/10/2008
Thanks oec10210. Your post brings me some comfort about this ...
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Thanks oec10210. Your post brings me some comfort about this board
I am getting quite disappointed about this board lately. Too much talk about CDS again.

XL capital at 4 bucks worths a look, yet all we care about it CDS gain?

Give me a break.

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XL CDS - more money for Fairfax
oec10210 10/10/2008
Glider, thanks for the update. While happy a...
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Glider, thanks for the update.

While happy as an FFH/ORH holder to keep track of their CDS gains, I also think we should not ignore the possibility that the ever-widening turmoil must be getting to the point where it might impact on FFH reinsurance recoveries; in which case the CDS positions (at least, part of them) should be more rightly seen as hedges rather than outright profit making instruments.

It appears that their recoverables are quite well spread out with no single exposure greater than 16% of equity (2007 AR). Nevertheless, given the systemic meltdown and the potential domino effect, their total net exposure of about $3.5b is a concern.

Does anyone here have a better sense of how FFH has moved to reduce the risk in this area? A related question: Is it fair to say that many/most reinsurers are less well regulated than primary insurers because they are often set-up offshore? (And, consequently also, less likely to be bailed out than primary insurers?)

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Markel Hurricane and Investment Losses
Partner24 10/10/2008

it is a little bit disapointing announcement, I've been through that ride before...with Fairfax. I remember far too well that runoff has been a pain in the *** for ...
business partner of both of them. While MKL has not been as conservative as Fairfax with their investment side, MKL is overall a quality and conservative enough insurance company and ...
portfolio, while they have a lot of holdings, their top 2 positions are Berkshire and Fairfax and they weigh 25% together. Cheers! ...

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XL CDS - more money for Fairfax
smazz 10/10/2008

more money for Fairfax" ha - I love that heading. ...

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XL CDS - more money for Fairfax
glider3834 10/9/2008
gone through the roof today - at 30/6 ORH held about 200 mil notional - Fairfax probably 4x this. assuming Fairfax have held on they would have made a decent ...
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it looks like XL spreads have gone through the roof today - at 30/6 ORH held about 200 mil notional - Fairfax probably 4x this.

assuming Fairfax have held on they would have made a decent sum on these

http://www.reuters.com/article/rbssFinancialServicesAndRealEstateNews/i

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Fairfax Buys More International Forest Products!
uccmal2 10/9/2008

Linny, Your right... Doing too many things at once. I ...

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Fairfax Buys More International Forest Products!
Linny233 10/9/2008
Uccma, I was equally excited about the buyback prospects wit...
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Uccma,

I was equally excited about the buyback prospects with ORH. But 100k is only $3.5m not 35. I made the same mistake at first. Still great use of cash IMO

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Hedgehog
Crip_1111 10/9/2008

STILL doing well. <st1:City w:st="on"><st1:place w:st="on">Fairfax</st1:place></st1:City> may drop to US$220 but I am not ...

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Collins’ Good to Great was the best book on business I ever read. It was discussed here and there on some postings a number of years back, but one of the principal themes of the book is quite applicable to recent discussions regarding our current investment marketplace. Hedgehog Mentality:

Hedgehogs, on the other hand, simplify a complex world into a single organizing idea, a basic principle or concept that unifies and guides everything. It doesn’t matter how complex the world, a hedgehog reduces all challenges and dilemmas to simple—indeed almost simplistic—hedgehog ideas. For a hedgehog, anything that does not somehow relate to the hedgehog idea holds no relevance.

<st1:place w:st="on">Princeton</st1:place> professor Marvin Bressler pointed out the power of the hedgehog during one of our long conversations: “You want to know what separates those who make the biggest impact from all the others who are just as smart? They’re hedgehogs.” Freud and the unconscious, <st1:City w:st="on"><st1:place w:st="on">Darwin</st1:place></st1:City> and natural selection, Marx and class struggle, Einstein and relativity, Adam Smith and division of labor—they were all hedgehogs. They took a complex world and simplified it. “Those who leave the biggest footprints,” said Bressler, “have thousands calling after them, ‘Good idea, but you went too far!’

Guys, there are some really smart people posting on this board, REALLY smart, such that I am often reluctant to post (Better to remain silent and have everyone think you are an idiot than to talk and remove all doubt). But this is different. Recent discussion have centered around hedging or not hedging, who is right, who is wrong, pro-con on the USD, how far down is down, are we close to the bottom, puts, calls leaps, what about Japan? MY HEAD IS GOING TO EXPLODE.

Value Investors are those who buy dollars for 50 cents, or less. That concept has received less and less discussion on this board which is disappointing. The Latticework of Mental Models which we all possess (some of us more than others) is compromised when we get too concerned with whether we are to decline another 5% or 25%. Of course, we ALL hate paying more for a stock, or a beer for that matter, than we need to. But if we are buying a stock for 40 cents on the dollar, we are doing pretty well. If it is 50 cents, we are STILL doing well. <st1:City w:st="on"><st1:place w:st="on">Fairfax</st1:place></st1:City> may drop to US$220 but I am not sure I’ll wait for that level if we see US$240.

When we concentrate on issues outside of valuing companies relative to their prices, we run the risk losing the Hedgehog’s focus. Food for thought, guys.

-Crip

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Fairfax Buys More International Forest Products!
niels12think 10/9/2008

ORH close in new 52 week low, while the company is making re...

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Fairfax Buys More International Forest Products!
SanjeevParsad 10/9/2008
S&P500 is now down 41% from its high of last year. ...
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S&P500 is now down 41% from its high of last year. We are slowly approaching the lows of the tech wreck. Can you imagine what FFH is going to pick up with all the cash they have available? Wow! Cheers!

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Fairfax Buys More International Forest Products!
uccmal2 10/9/2008
Holdco cash for buybacks. Float for equities.&nbs...
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Holdco cash for buybacks.

Float for equities.

I am betting that ORH bought back 100000 shares today at a cost of 34 Million.

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Fairfax Buys More International Forest Products!
triedtestedand 10/9/2008
At this juncture, I'd prefer to see FFH and ORH plow all the...
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At this juncture, I'd prefer to see FFH and ORH plow all their money into buybacks ... I'm sure they're doing some, but ORH at what is now (in the past 30 minutes) $34 and change is likely effectively selling at 75% of Q3/08 book.

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Fairfax Buys More International Forest Products!
SanjeevParsad 10/9/2008
Fairfax now owns almost 20%. Cheers! http://www.fairfax.ca/Assets/Downloads/Press/fpr2008-10-09.pdf ...
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Fairfax now owns almost 20%. Cheers!

http://www.fairfax.ca/Assets/Downloads/Press/fpr2008-10-09.pdf

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Profit From Panic With Businesses Like Fairfax, Linn
oldye 10/9/2008

http://www.thestreet.com/story/10441591/1/profit-from-panic-with-businesses-like-fairfax-linn.html By Sham Gad ...

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Probably Best to Stay or Get Hedged
SParsad 10/9/2008

mentioned it in our quarterly letters and in our presentation in Toronto right after the Fairfax AGM. We bought WFC from $29 all the way to $21, and then sold ...

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Sanjeev,

Thanks, but for the record, my emotions are fine and the bold was for emphasis because I don't think people understand this and they need to not dismiss the possibility. And my post, if you read it, was very balanced - sorry if the font overshadowed the very balanced, conservative view imbedded in the post.

I would like people to go re-read all of Prem's comments from the past week in various interviews - especially the latest one in the Globe, re-read every word; look at p.19 of his Scotia investor day presentation posted on this board; Shiller just did an interview on Bloomberg today which is consistent with the implications of p.19.

When I sat with Prem in 2005, we discussed how things would end ugly eventually. It didn't start until two years later and the S&P500 had risen another 300 points by then. The MPIC Funds were 40% cash or better through all of 2006 and into July/August of 2007.

Before that, like 6 years ago, go look at Buffet's 2000-2002 Fortune articles, go look at Century Management OID 2004 presentation on macro and price levels for stocks, read Grantham, spend about two weeks analysing all this and another two weeks thinking about it further and re-analysing. After having done this a few years back, given what is going on, I conclude the following:

1. Buffet says if you buy at 70-80 percent of GDP you should get satisfactory results (we are now just over 80% but almost there I believe). Does this mean Buffet thinks this is an optimal buy point given what is going on as I don't think he was thinking of this then;

That's only if you are buying the index. Investors can receive satisfactory results in the most optimistic and most pessimistic environments if they buy individual stocks using a "deep-discount, margin of safety" philosophy. Remember, the stock market's capitalization versus GDP was well over 100 in the U.S. for over the last five years. There was plenty of opportunity to make decent investment returns, regardless of the valuation, as long as you looked for it.

2. When bubbles finally burst, they usually go through the mean. Grantham will tell you they normally go through the mean;

Yes, they usually do, but it isn't always true. The bubble burst in 2002/2003 but was quickly reflated. It never hit the mean. During the crash from 1929-32, there were multiple occasions when the market was down considerably, only to rally significantly and ultimately tread downwards into the abyss.

3. Prem's slide says 60% is the mean;

Yes, but if you look at the slide, there is nearly a generation of time that goes by where the chart is well above the mean. Should people have stayed away from the market for fifteen years? Of course not.

4. In '30s and 70s, they shot down as far as 40% ish which means if we are at 80% now there could be some downside as it has happened in the past not that I am predicting this as most likely. Given my analysis, comparison to past periods vs current period, I think another 10-30% is most likely. This is what Watsa was also effectively saying in those articles - that is why I emphasized those articles.

Very possible. Again, more of an issue if you are buying the market. There is no reason to believe that a quality selection of commercial notes and/or quality preferred shares cannot do far better than treasuries over the next five-ten years. Capable investment managers could probably do significantly better even buying equities.

5. Of course certain stocks will plunge and present great value - Buffet bought WFC in the low 20s this year for his account and its now 30 - this is the time to look for those. Just because Buffet is buying though and finding these deals and acting at lightning speed, it doesn't mean he is buying at the same level as us - look at that WFC purchase for his own account - its up 50%! He's not buying GS, GE common, he's buying the prefs yieldling 10% with 10% in the money warrants attached. If those stocks go lower, he still gets his 10% and can go buy the actual stock at 75% of today's price if it gets there.

I talked about WFC on here over the last eight months. As well as a couple of other boardmembers did too. We also mentioned it in our quarterly letters and in our presentation in Toronto right after the Fairfax AGM. We bought WFC from $29 all the way to $21, and then sold out at $33-34 at an average cost of $25. The reason we sold was because so many other things started to get hammered. We didn't make 50%, but we certainly did far better than the markets. You can find opportunity, but you have to work at it. Even in this awfully fearful market.

You might not get preferred deals like Buffett, but there are plenty of deals available for investors without stepping into equities. While not touting it one way or the other, but someone on here mentioned that OSTK 2011 notes were yielding 15% annualized. LVLT 2010 notes are yielding 37% or better annualized. There are different opportunities all over the place. You have to be careful what you buy, but there is lots of stuff to look at right now. I am not suggesting you buy either of the notes above!

Having spent some time analysing, this is not your normal bear market in my opinion and bubbles when they burst don't necessarily accomodate and stop where it gets attractive to start buying (i.e. 70-80 percent of GDP). Like Prem said, its not like they will bounce immediately anyway - there should be a lot of time to pick up the scraps when everyone decides they'll never buy stocks again or use leverage.

I would note that the JNJ, KO and BRK and the like - high quality large cap - are very cheap relative to the overall market. People may just be unloading everything at this point including these things that maybe they should have held onto.

JNJ, BRK and KO are good values, but not cheap. Small investors can do far better by treading in other places. As Calonego said, there are many businesses trading at 3-7 times conservative earnings. There are plenty of opportunities in distressed bonds, commercial paper and small-mid-cap stocks. Yes, things may go down further, but all you have to do is keep hunting.

We are finding lots of things, and we are are keeping well ahead of the markets. Even Francis said to me last week that he is finding some very interesting things. We all know what high esteem Hamblin-Watsa and Prem hold Francis in and vice-versa. So keep looking, don't become fearful, stay disciplined and stick to Ben Graham's lessons. Cheers!

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Probably Best to Stay or Get Hedged
SParsad   10/9/2008
my posts criticizing Sellers because I was incorrect. I have to temper enthusiasm for Fairfax when everyone is extremely bullish. I also have to assuade fear to a certain ...
when there is panic. Just like I did when people where freaking out about Fairfax back in 2003. So please don't take it as an insult in any ...
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Mungerville, don't be insulted. Everyone knows you contribute immensely to this board. In regards to your comments:

1. Mataburro0 and whoever the hell the three of you were that recommended that post: What the hell exactly do you think I am trying to sell by making the case for being 50% hedged in this market? Really? You four need to take your Motley Fool remark back because it makes no sense at all and it is quite rude for the sake of only being rude.

If you look at your original post again, and the underlined, boldfaced, highlighted portions, you'll see that those comments are a bit inflammatory...in the panic-stricken sense of the word. I don't know exactly what Mataburro meant, but I think it is more based on how the Fool puts out an article and the most sensationalized portions are bold-faced to get the readers attention.

2. Sanjeev, I appreciate all your efforts and you have put together the best board on the Internet, so you deserve a more polite remark but, frankly, I am surprised ...

"Who the heck says I disagree with Prem? I just think it's irresponsible for people to yell "fire" in a crowded movie theatre. Who the hell is yelling "fire". Did I say sell all your stocks now? NO. Go read what I said again, look at the title. The title says HEDGE which implies stay long your stocks and I give a way to do that while staying long... but Heeeedge.    It is irresponsible for you to mis-characterise this as yelling fire. I am long but hedged and I am buying as we go lower for the record but I am staying hedged and I was trying to make the case that that could be the right thing to do EVEN though we are down 30 odd percent. Ask yourself who is yelling fire here.

Again, this goes back to the highlighted portions of your original post. You emphasized the more dramatic segments:

WE COULD BE NOWHERE CLOSE TO THE ULTIMATE BOTTOM.

AND Munger said a couple years ago that they are not holding all those bonds for the fun of it implying that their intent is to move those into stocks at some point.

[My note: remember when you go from $100 to $75, that's a 25% loss (this is where we are at now); you gotta go down another 33% from $75 to get to $50 - so Watsa saying we are going lower by 33%. End of story.

[We are nowhere near this point are we? Not even close]

As I said above Mungerville, I don't think anyone was insulting you in any manner...at least I wasn't. I've got one partner in our fund who reads this board religiously and is storing money in a box in his house! He's making emotional decisions based on message board posts as well as all the paranoia the media dramatizes.

We haven't even hit the same level as the S&P500 hit after the tech-wreck. That's still another 200 points away. Yet people are panicking as if we are already in another Depression.

My job on this board is to moderate posts.  I have to be responsible for what is on here. I pulled my posts criticizing Sellers because I was incorrect. I have to temper enthusiasm for Fairfax when everyone is extremely bullish. I also have to assuade fear to a certain degree when there is panic. Just like I did when people where freaking out about Fairfax back in 2003. So please don't take it as an insult in any manner. It wasn't meant to be.  But I thought I had to temper your emotional outlook on what Prem said.

Believe me, there is no one on this board who believes Prem more than me. No one! But whether it is Prem, Warren Buffett, or my own mother, I have to add balance to the argument. Cheers!

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An email I wrote to Francis this past April...something to think about
dengyu_the_nugget 10/8/2008

April 23, 2008 12:00 AM To: Admin@choufunds Subject: Nice meeting you at the Fairfax Dinner last week! Hi Francis, It was very nice meeting you at the ...
Fairfax Dinner last week! It was truly one of the most informative sessions I have ...

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I am not going to post his reply...but what I wrote is something we should have been preparing for, and I don't think we are anywhere near bottom.

From: Yu Deng [mailto:yudeng2004@hotmail.com]
Sent: April 23, 2008 12:00 AM
To: Admin@choufunds
Subject: Nice meeting you at the Fairfax Dinner last week!

Hi Francis,

It was very nice meeting you at the Fairfax Dinner last week! It was truly one of the most informative sessions I have been to in my life. I was the kid sitting across from you and Sam and I asked you guys about the looming recession.
The single biggest take away I got during the session was "don't underestimate how low prices can go". I kept on thinking about that scenario and I think the timing of this lesson is perfect.
As I mentioned, I have never been through a recession in my investing career but from everything I am reading I get the feeling that this current recessionary environment is very severe. I hate to make macro calls but the underlying problems we are facing seems to have no remedy. I am especially focused on the negative housing equity death spiral, where negative equity breeds foreclosures, which breeds selling pressure, and that breeds even more negative equity and so on. And the most scary part is - this is happening while lending capacity is reduced by weak balance sheets and job losses are rising. I know you don't make macro calls, but how would you compare today's fundamental problem to the 70's? Do you see the potential of huge fear in the market going forward? I think current valuations are not reflecting the possbility of massive fear brought forth by continuing deleveraging pressure + real diseaster for the american consumer.

I am increasing the discount on stocks I want to own since that is the only defensive stance I could take. But do you think that in the long run it is actually prudent to change the discount requirement depending on market conditions? If one sees the looming crisis coming, would it make sense to increase the discount factor?

Thanks for your time at the dinner once again an looking forward to your reply!

Best,
Yu Deng

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Fairfax Announces Acquisition of International Forest Products Shares
ubuy2wron 10/8/2008

Own it HWD.un and have been adding started buying with last ...

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Probably Best to Stay or Get Hedged
mungerville 10/8/2008

got a long ways to go down before that happens ," says Prem Watsa, chairman of Fairfax Financial Holdings. [My note: remember when you go from $100 to $75, that's ...

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I have re-posted this from the Crash on Monday string:

I am just trying to help but I don't think I have been nearly emphatic enough lately: WE COULD BE NOWHERE CLOSE TO THE ULTIMATE BOTTOM.

I have no idea why being fully hedged is bad or even sub-optimal or such a hard thing to do. If you can pick'em you'll get the RELATIVE upside even when you are hedged - you just give up the macro upside for the macro downside protection. Anyway, not that you guys don't understand this.

Stocks remain potentially very overvalued: 20 times earnings on inflated earnings on the S&P as of this past weekend - this is not a low, its a HIGH BY ANY HISTORICAL MEASURE.

Its not exactly like Buffet has been screaming about being horny in brothels or anything like he did in '74 - last thing he said was something about Pearl Harbour. Ya, he's deploying cash all right but on deals for GE, GS, and CEG that I can not get nor can you and he is taking those as they come in senior securities to common. Buffet says they have not much cash left (but he likes to keep 10 billion as a minimum, so he only spent max $25 billion of his original $35 billion or so), but significant new cash will come in over the next 3 years AND Munger said a couple years ago that they are not holding all those bonds for the fun of it implying that their intent is to move those into stocks at some point. Certain pieces of information just stick in my mind and I don't know where I heard it but I did hear it (I am 100% certain I heard it). $25 billion in investments is nothing compared to the market cap of Berkshire. I'll believe its the bottom when they sell those bonds and go all in. I don't hear anyone talking about this viewpoint much.

Stocks are down 30% right now and Watsa is saying, yesterday Oct 7th, in no uncertain terms that they are going lower. Be carefull here, that is all I am saying - plus its a hell of a lot easier buying value when you are hedged (more importantly, for you and your partners for those of you running money, its been and could continue to be more profitable too):

Key Quotes from Watsa yesterday:

"Stock markets are not down 50 per cent in Canada or the United States from their highs. They've got a long ways to go down before that happens," says Prem Watsa, chairman of Fairfax Financial Holdings. [My note: remember when you go from $100 to $75, that's a 25% loss (this is where we are at now); you gotta go down another 33% from $75 to get to $50 - so Watsa saying we are going lower by 33%. End of story. I am not reading ANYTHING into this Sanjeev! Its all black and white coupled with basic math!]

Do not expect that a sharp contraction in the economy will purge the toxic debt and bring on a quick recovery, Mr. Watsa says. The Great Unwinding is the end of "a 20-year phenomenon of excess optimism ... so I don't think we should expect it [to be over in] six months."

"In September, there were redemptions [of mutual funds], significant redemptions ... But history shows you've got to have months of redemptions. That's an indication that people are losing their confidence and want to be out of the market.

"You'll see the average pension fund going down to 30 per cent, 40 per cent equity allocation. ...'Stock' will be a bad word. You'll see all that for some time before you have to react." [We are nowhere near this point are we? Not even close]

Full Watsa Article:

http://www.theglobeandmail.com/servlet/story/LAC.20081007.RDECLOET07/TP

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Crash on Monday?
mungerville 10/8/2008

got a long ways to go down before that happens ," says Prem Watsa, chairman of Fairfax Financial Holdings. [My note: remember when you go from $100 to $75, that's ...

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I am just trying to help but I don't think I have been nearly emphatic enough lately: WE COULD BE NOWHERE CLOSE TO THE ULTIMATE BOTTOM.

Stocks remain potentially very overvalued: 20 times earnings on inflated earnings on the S&P as of this past weekend - this is not a low, its a HIGH BY ANY HISTORICAL MEASURE.

Key Quotes from Watsa yesterday:

Full Watsa Article:

http://www.theglobeandmail.com/servlet/story/LAC.20081007.RDECLOET07/TP

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Fairfax Announces Acquisition of International Forest Products Shares
woodstov 10/8/2008

Well, here's a situation that just squeaks in re the $25m flo...

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Fairfax Announces Acquisition of International Forest Products Shares
RabbitisRich 10/8/2008
I'll send Mr. Watsa some Kabbalah water for a little occult b...
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I'll send Mr. Watsa some Kabbalah water for a little occult boost.

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Fairfax Announces Acquisition of International Forest Products Shares
Shai_Dardashti 10/7/2008
The excerpt passage below, apologies for inevitable typograph...
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The excerpt passage below, apologies for inevitable typographical errors in the re-typing, might be a relevant data point to the above discussion:

===

[Barton Biggs writing] "I’m on the board of a family trust and of a foundation. The meetings I go to get me thinking about what kind of expectations are reasonable for long-term, real returns for family money, and the problems of planning for good investment management generations ahead. An interesting book in this regard is Fritz Stern’s Gold and Iron: Bismarck, Bleichroder, and the Building of the German Empire. It’s a book I first read maybe 20 years ago, and its about power, money, real returns, and how to protect future generations from themselves.

"TIMBERLAND FOR CHILDREN WITH INHERITED MONEY

"Gerson Bleichroder was a nineteen-century German Jew who had a life filled with immense financial triumph, persecution, and personal sadness. Otto Von Bismarck represented the Old Prussia – aristocratic, agrarian, hierarchic – and it was his ambition and vision that welded the First Reich into an empire. In 1859, when he was 37, Bleichroder became the banker and investment adviser for the rising Junker diplomat, and for 30 years the two leveraged their insights and power to achieve great wealth and prominence. In nineteenth century Germany, it was the custom of the Prussian aristocracy to employ a Jew as “a more or less occult instrument,” as Bismarck so exquisitely put it. Incidentally, that’s the ultimate compliment for an investment adviser.

[edited...not particularly relevant for the issue at hand...]

"Bismarck, the Prince, worked hard at projecting a magnificent exterior and omnipotence....His primary obsession, other than ruling Germany, was with making money in the stock market so he could buy more and more timberland. He treated everyone around him abominably.

"However, both men must have had that mystical “seeing eye,” which enabled them to perceive the future chain of events that would be triggered by an action in the present. This is what successful investing still is all about. While suspended in the midst of times that were full of mystery, uncertainty, and doubts, they had the capacity to maintain their pose and world view and never to impatiently or irritably reach for a fact or conclusion.

"Bleichroder exploited the insights that Bismarck provided to make both his patron and himself very rich. But he also had what Bismarck once referred to as “a certain timidity in investing.” He told his clients he would attempt to get them over the long run a real return (after inflation) of 4% per annum, which would mean that the purchasing power of their wealth would double every 17 or 18 years. His timidity kept him from becoming engulfed in the new-issues market of the 1870s or in the mania for colonial investing that later wiped out so many men and German banking houses. In other words, he became very rich because he endured. I calculate that Bismarck’s account with him compounded at about 10% per annum over 25 years and that inflation averaged less than one percent. Bismarck was perfectly satisfied with this return, but always withdrew his profits and invested them in land and trees.

"Bismarck’s appetite for timberland was insatiable. His theory was that the price of land would gradually appreciate in line with population growth, or about two percentage points annually. His studies had convinced him that German forests would grow 2.75% a year, so that his real return for timberland would be around 4.75% per annum, because inflation at the time was virtually zero. If there was inflation, he was sure timberland and log prices would appreciate in line with the inflation. He thought that with very little risk, this was a spectacular compounding of wealth. As it turned out, Bismarck was absolutely right.

[*EMPHASIS ADDED*] "Over the next half century in Germany of war, inflation, surrender, and depression, timberland held value far better than anything else.

===

- Hedge Hogging by Barton Biggs, "From One Generation to Another" (Pages 149 – 152)

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Fairfax Announces Acquisition of International Forest Products Shares
woodstov 10/7/2008
Besides the public companies, there are some good assets like...
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Besides the public companies, there are some good assets likely to come on the market, perhaps. Some companies are going to be disposing of non-core business units and not many buyers with the cash (or funding) to acquire.

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Fairfax Announces Acquisition of International Forest Products Shares
653211 10/7/2008
Yeah, it looks like we are turning into a forest company with...
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Yeah, it looks like we are turning into a forest company with SFK, ABH, and now with IFP :)

Cheers

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End of the Short Ban
mills-man 10/7/2008

Niels12think , your story about Volkswagen is funny. I was unable to sell my Fairfax shares, because i think one day we will see this happen. I'm just ...
climbing on BV alone. In canadian french press, i rarely read anything on Fairfax. ...

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Fairfax Announces Acquisition of International Forest Products Shares
oldye 10/7/2008

http://biz.yahoo.com/iw/081007/0440990.html

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End of the Short Ban
niels12think 10/7/2008

and banks,'' Milan-based Bonacina said. " Then imagine what could happen with for instance Fairfax, which could quickly becoming the story of the markets based on the incredible gains and ...

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Looking in Rear View Mirror
SanjeevParsad 10/7/2008

basis, no company has made more money in the last year and a half than Fairfax. He's learned his lessons from TIG and C&F. This company ...

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Looking in Rear View Mirror
mills-man 10/7/2008
nbsp;He has to do everything possible to protect Fairfax's equity and preserve their ability to write business. I t's the reason&...
nbsp; why we will see a continuous growth at Fairfax. He made a lot of money in last 12 month and want to protect ...
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He has to do everything possible to protect Fairfax's equity and preserve their ability to write business.

It's the reason why we will see a continuous growth at Fairfax. He made a lot of money in last 12 month and want to protect this. Accept smaller investment results to protect insurance capacity look good for me. We are in better shape and prepare to expand in hard market. Our company would reduce the investment dependance, wich would result in better rating.

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In the current economic meltdown Prem Wasta and his Fairfax Financial are among the few winners.