Author Topic: Hey, Mr. Market! Do I really have to make FFH 50% of my portfolio?  (Read 90684 times)

rjstc

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Re: Hey, Mr. Market! Do I really have to make FFH 50% of my portfolio?
« Reply #20 on: June 27, 2013, 11:02:29 AM »
Hi longinvestor!
I know and agree with all those true things about BRK... Yet, still I am not convinced... I just don't understand a business on autopilot... A business without a strong person at the helm... Just one man or woman... Not a team or a board of directors... But I know that's me, and only me!

Vice versa, I am not worried at all about Mr. Watsa's succession plan. When, 20 years from now, he steps down, FFH will simply be what BRK is today. And I will sell my investment.

giofranchi

And that's what makes this a great sounding board. Both thoughts aren't wrong! In the long run both will work. Maybe one a little better than the other but in the greater scheme of things all that matters is a positive outcome. Good discussions here.


muscleman

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Re: Hey, Mr. Market! Do I really have to make FFH 50% of my portfolio?
« Reply #21 on: June 27, 2013, 07:01:20 PM »
Giofranchi, be carefull BV will likely do down in Q2 because of their bond portfolio. FFH marks most of their bonds to market (held for trading bonds are MTM). I can foresee some repricing of FFH this quarter.

BeerBaron

C’mon, beerbaron! That’s exactly Mr. Market’s thesis… There is always a reason why Mr. Market gives you an opportunity!
And a repricing is never easy to foresee… What you can and do know with FFH is the price you pay and the value you get!
Let a repricing unfold: I will average down gladly! ;)

giofranchi

It's not a thesis, the actual value of FFH went down with the bond portfolio. I like to anchor myself at a specific price/BV not a dollar value. I'll gladly buy a shipload at 90% of Q2 BV tough!

BeerBaron

The actual value of FFH will fluctuate a lot... Will go up and down... But I don't really care. What I care about is very simple: a company, that has increased BVPS at 20% annual for 26 years, has almost gone nowhere for 3 years now. And in the meantime it has done everything right. Someone believes they have made mistakes... But I disagree. I would have done exactely the same! And I don't think we will have to wait a lot more, to see BVPS increase very fast again. That's why I have no doubt that any price below $380 is great value!

giofranchi

I am not sure if they have done everything right. They shorted the SP500index since 1040, and it is over 1610 now.
Regarding their largest equity positions, RIMM may do fine, but SD is quite worriesome to me. Why do they support TW, one of the greatest shareholder front runner? That is still puzzling to me. Firing TW costs shareholders 150M. Also I have no idea if the type curve is correct for SD. Its first year decline is over 76% but can only recover 25% of well cost? That means they have to make rosy projections for the remaining 9 years to justify the IRR of 40%.
Of course, you could argue that SD and RIMM investments only account for less than 1% each of the total portfolio, but isn't the equity positions the reason to long FFH? Any insurance companies, be it AIG or White Mountain, they can all buy bonds and get 10% ROE. It is the equity positions of FFH that makes it stand out of the crowd.

FFH bulls, please correct me if I am wrong. I have not spend extensive amount of time to study FFH so please let me know what I am missing here.
I am muslceman. I have more muscle than brain!

giofranchi

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Re: Hey, Mr. Market! Do I really have to make FFH 50% of my portfolio?
« Reply #22 on: June 27, 2013, 11:33:38 PM »
I am not sure if they have done everything right. They shorted the SP500index since 1040, and it is over 1610 now.
Regarding their largest equity positions, RIMM may do fine, but SD is quite worriesome to me. Why do they support TW, one of the greatest shareholder front runner? That is still puzzling to me. Firing TW costs shareholders 150M. Also I have no idea if the type curve is correct for SD. Its first year decline is over 76% but can only recover 25% of well cost? That means they have to make rosy projections for the remaining 9 years to justify the IRR of 40%.
Of course, you could argue that SD and RIMM investments only account for less than 1% each of the total portfolio, but isn't the equity positions the reason to long FFH? Any insurance companies, be it AIG or White Mountain, they can all buy bonds and get 10% ROE. It is the equity positions of FFH that makes it stand out of the crowd.

FFH bulls, please correct me if I am wrong. I have not spend extensive amount of time to study FFH so please let me know what I am missing here.

Hi muscleman,
I would strongly recommend to read “The Great Depression – A Diary” by Benjamin Roth. If there is only the slight chance that the '30s in America and the '90s in Japan are similar to what we are living through today on a global scale, I really want to be aggressive, when prices are extremely cheap, while not reaching for yield (an equity portfolio that relies on the outperformance of long positions over its hedges on the indices, with ample cash reserves) the rest of the time. And I want to partner with people who behave that way. In 2005, 2006, and 2007 FFH was defensive; in 2008, 2009, and 2010 FFH became aggressive; in 2011, 2012, and 2013 it is on the defensive again. And I think we won’t have to wait a lot more to see FFH become aggressive again!
What I mean is that strategically they have made no serious mistake so far, though they might have encountered some timing difficulties. Yet, timing imo is way overrated… don’t get me wrong: if your strategic view is flawed, but your timing is right, you might still end up doing very fine! Vice versa, if your strategic view is flawed and your timing is wrong, you might get killed! So, basically, if you are wrong… timing is very important! Though that sounds a lot like saying: if you are wrong, to get lucky is very important! On the other hand, if your strategic view is correct, and you possess the wherewithal to be patient and wait, even bad timing at the end won’t prevent you from achieving satisfactory results. Summing up: wrong + lucky vs. right + unlucky… guess which one I prefer? ;)

I don’t follow single investments very closely, so I cannot answer your questions about BBRY or SD…

giofranchi
« Last Edit: June 27, 2013, 11:36:20 PM by giofranchi »
Portfolio: AAPL, AMZN, BABA, BOSS, BRK.B, FB, FFH, FIH.U, FINX, FWONA, GOOG, IBB, JPM, LBRDA, MKL, NKE, QQQ, SFTBF, SMH, TCEHY, V, XBI, XT

valueInv

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Re: Hey, Mr. Market! Do I really have to make FFH 50% of my portfolio?
« Reply #23 on: June 27, 2013, 11:40:39 PM »
I am not sure if they have done everything right. They shorted the SP500index since 1040, and it is over 1610 now.
Regarding their largest equity positions, RIMM may do fine, but SD is quite worriesome to me. Why do they support TW, one of the greatest shareholder front runner? That is still puzzling to me. Firing TW costs shareholders 150M. Also I have no idea if the type curve is correct for SD. Its first year decline is over 76% but can only recover 25% of well cost? That means they have to make rosy projections for the remaining 9 years to justify the IRR of 40%.
Of course, you could argue that SD and RIMM investments only account for less than 1% each of the total portfolio, but isn't the equity positions the reason to long FFH? Any insurance companies, be it AIG or White Mountain, they can all buy bonds and get 10% ROE. It is the equity positions of FFH that makes it stand out of the crowd.

FFH bulls, please correct me if I am wrong. I have not spend extensive amount of time to study FFH so please let me know what I am missing here.

Hi muscleman,
I would strongly recommend to read “The Great Depression – A Diary” by Benjamin Roth. If there is only the slight chance that the '30s in America and the '90s in Japan are similar to what we are living through today on a global scale, I really want to be aggressive, when prices are extremely cheap, while not reaching for yield (an equity portfolio that relies on the outperformance of long positions over its hedges on the indices, with ample cash reserves) the rest of the time. And I want to partner with people who behave that way. In 2005, 2006, and 2007 FFH was defensive; in 2008, 2009, and 2010 FFH became aggressive; in 2011, 2012, and 2013 it is on the defensive again. And I think we won’t have to wait a lot more to see FFH become aggressive again!
What I mean is that strategically they have made no serious mistake so far, though they might have encountered some timing difficulties. Yet, timing imo is way overrated… don’t get me wrong: if your strategic view is flawed, but your timing is right, you might still end up doing very fine! Vice versa, if your strategic view is flawed and your timing is wrong, you might get killed! So, basically, if you are wrong… timing is very important! Though that sounds a lot like saying: if you are wrong, to get lucky is very important! On the other hand, if your strategic view is correct, and you possess the wherewithal to be patient and wait, even bad timing at the end won’t prevent you from achieving satisfactory results. Summing up: wrong + lucky vs. right + unlucky… guess which one I prefer? ;)

I don’t follow single investments very closely, so I cannot answer your questions about BBRY or SD…

giofranchi

What you're saying is that FFH should be considered  more of a macro investor and not a typical  bottom up value investor?

giofranchi

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Re: Hey, Mr. Market! Do I really have to make FFH 50% of my portfolio?
« Reply #24 on: June 27, 2013, 11:53:24 PM »
What you're saying is that FFH should be considered  more of a macro investor and not a typical  bottom up value investor?

No… I wouldn’t put it that way… I think Mr. Watsa would neither appreciate it, nor agree with it… Instead, what I meant is that imo they are great strategic thinkers… And I like to partner with great strategists.. if I can do that at a good price!!
What’s a great strategist? Well, Mr. Vanderbilt was a great strategist, long before terms like bottom-up, top-down, macro, micro, etc. had even been invented! ;)

giofranchi
Portfolio: AAPL, AMZN, BABA, BOSS, BRK.B, FB, FFH, FIH.U, FINX, FWONA, GOOG, IBB, JPM, LBRDA, MKL, NKE, QQQ, SFTBF, SMH, TCEHY, V, XBI, XT

peterism

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Re: Hey, Mr. Market! Do I really have to make FFH 50% of my portfolio?
« Reply #25 on: June 28, 2013, 09:30:40 AM »
Giofranchi, be carefull BV will likely do down in Q2 because of their bond portfolio. FFH marks most of their bonds to market (held for trading bonds are MTM). I can foresee some repricing of FFH this quarter.

BeerBaron

C’mon, beerbaron! That’s exactly Mr. Market’s thesis… There is always a reason why Mr. Market gives you an opportunity!
And a repricing is never easy to foresee… What you can and do know with FFH is the price you pay and the value you get!
Let a repricing unfold: I will average down gladly! ;)

giofranchi

It's not a thesis, the actual value of FFH went down with the bond portfolio. I like to anchor myself at a specific price/BV not a dollar value. I'll gladly buy a shipload at 90% of Q2 BV tough!

BeerBaron

The actual value of FFH will fluctuate a lot... Will go up and down... But I don't really care. What I care about is very simple: a company, that has increased BVPS at 20% annual for 26 years, has almost gone nowhere for 3 years now. And in the meantime it has done everything right. Someone believes they have made mistakes... But I disagree. I would have done exactely the same! And I don't think we will have to wait a lot more, to see BVPS increase very fast again. That's why I have no doubt that any price below $380 is great value!

giofranchi


Can you tell why as a yardstick for performance you are using 26 year result? If I look at last 15 years CAGR of BVPS is 12% and for last 10 years CAGR of BVPS is 11% (including dividends paid).

giofranchi

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Re: Hey, Mr. Market! Do I really have to make FFH 50% of my portfolio?
« Reply #26 on: June 29, 2013, 03:07:55 AM »
Can you tell why as a yardstick for performance you are using 26 year result? If I look at last 15 years CAGR of BVPS is 12% and for last 10 years CAGR of BVPS is 11% (including dividends paid).

Well, I guess any comparison with the past might only take you that far, right? What is really needed in investing is a strong conviction about future possible returns. There is really no substitute for due diligence and all the hours spent studying and trying to deeply comprehend a business. :)

giofranchi
Portfolio: AAPL, AMZN, BABA, BOSS, BRK.B, FB, FFH, FIH.U, FINX, FWONA, GOOG, IBB, JPM, LBRDA, MKL, NKE, QQQ, SFTBF, SMH, TCEHY, V, XBI, XT

tombgrt

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Re: Hey, Mr. Market! Do I really have to make FFH 50% of my portfolio?
« Reply #27 on: June 29, 2013, 04:08:41 AM »
Can you tell why as a yardstick for performance you are using 26 year result? If I look at last 15 years CAGR of BVPS is 12% and for last 10 years CAGR of BVPS is 11% (including dividends paid).

Well, I guess any comparison with the past might only take you that far, right? What is really needed in investing is a strong conviction about future possible returns. There is really no substitute for due diligence and all the hours spent studying and trying to deeply comprehend a business. :)

giofranchi


After doing your DD, what would you say are the possibilities for FFH? Other than Prem's track record of course. In the past, BV growth was helped by an amazing bull market in bonds, extraordinary CDS gains, the first years (? first year 180% BV growth if I remember correctly) of operations, ...

I'm just curious because just a few posts ago you said this:

Hi longinvestor!
I know and agree with all those true things about BRK... Yet, still I am not convinced... I just don't understand a business on autopilot... A business without a strong person at the helm... Just one man or woman... Not a team or a board of directors... But I know that's me, and only me!

Vice versa, I am not worried at all about Mr. Watsa's succession plan. When, 20 years from now, he steps down, FFH will simply be what BRK is today. And I will sell my investment.

giofranchi


The case for Berkshire is actually very simple (even after WEB is gone) with it's decentralized group of very high ROE companies, great insurance companies underwriting at a great CR and long-term equity investments. It's likely that it remains a stable powerhouse with satisfactory returns.

Considering that you said yourself that there is no alternative to doing your DD; why do you view Fairfax as more attractive?

giofranchi

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Re: Hey, Mr. Market! Do I really have to make FFH 50% of my portfolio?
« Reply #28 on: June 29, 2013, 04:19:32 AM »
Can you tell why as a yardstick for performance you are using 26 year result? If I look at last 15 years CAGR of BVPS is 12% and for last 10 years CAGR of BVPS is 11% (including dividends paid).

Well, I guess any comparison with the past might only take you that far, right? What is really needed in investing is a strong conviction about future possible returns. There is really no substitute for due diligence and all the hours spent studying and trying to deeply comprehend a business. :)

giofranchi


After doing your DD, what would you say are the possibilities for FFH? Other than Prem's track record of course. In the past, BV growth was helped by an amazing bull market in bonds, extraordinary CDS gains, the first years (? first year 180% BV growth if I remember correctly) of operations, ...

I'm just curious because just a few posts ago you said this:

Hi longinvestor!
I know and agree with all those true things about BRK... Yet, still I am not convinced... I just don't understand a business on autopilot... A business without a strong person at the helm... Just one man or woman... Not a team or a board of directors... But I know that's me, and only me!

Vice versa, I am not worried at all about Mr. Watsa's succession plan. When, 20 years from now, he steps down, FFH will simply be what BRK is today. And I will sell my investment.

giofranchi


The case for Berkshire is actually very simple (even after WEB is gone) with it's decentralized group of very high ROE companies, great insurance companies underwriting at a great CR and long-term equity investments. It's likely that it remains a stable powerhouse with satisfactory returns.

Considering that you said yourself that there is no alternative to doing your DD; why do you view Fairfax as more attractive?

For FFH I see a very safe 15% CAGR in BVPS for the next 10 to 15 years.

To know and accept what I still don’t understand, and therefore cannot judge, and therefore cannot put a valuation to, is imo an integral part of DD. I repeat what I said a few posts ago: I just don’t understand a business on autopilot.

But I am sure everybody else will do just fine with BRK! :)

giofranchi
Portfolio: AAPL, AMZN, BABA, BOSS, BRK.B, FB, FFH, FIH.U, FINX, FWONA, GOOG, IBB, JPM, LBRDA, MKL, NKE, QQQ, SFTBF, SMH, TCEHY, V, XBI, XT

Packer16

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Re: Hey, Mr. Market! Do I really have to make FFH 50% of my portfolio?
« Reply #29 on: June 29, 2013, 04:29:02 AM »
I wonder if Fairfax realizes the huge opportunity cost the hedges have been.  I also wonder if they think their excellent timing of the last crash (hedges going in and removing near the bottom) can be repeated?  Fairfax's sweet spot is in investments so the hedges have wiped out a majority of their advantage.  I read a good quote from Howard Marks that you can't structure your portfolio to live through another 2008 because it was worse than worse case and you won't have much of a portfolio.  I think this is what Fairfax has done and I hope that upon careful reflection they will change.  I think the analogy to the 1930s or Japan in the 1990s is a stretch to say the least as the evidence since 2008 shows that this is a different situation.

Isn't the historical growth due in a large part to a growing investment portfolio that has reasonable returns?  With the hedges you have removed a large portion of the returns and thus the historical BV growth as FFH's underwriting results are not the best.  To quantify this over the past 3 years that the hedges have been on it has reduced investment returns by 1% per year.  To get to a 15% BV growth, FFH will have to earn $1.6 billion (.15 * BV /(1-tax rate)) or 6.2% pre-tax return on investments assuming they can generate a 100% combined ratio.  Over the past 3 years they have earned 4.9% on their investments implying a BV growth of 11.4%.  If you don't have the hedges you are at 14.3%.  The other potential upside asset they have is the deflation hedges.  Although they purchased at a great price and they have nice option characteristics, I think unless a major economic collapse happens they will expire worthless as the world governments will not let deflation happen (see the Fed and even the current ECB actions).

Packer
« Last Edit: June 29, 2013, 05:09:17 AM by Packer16 »