Author Topic: Year-End Results  (Read 13571 times)

giofranchi

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Re: Year-End Results
« Reply #20 on: February 15, 2013, 08:53:57 AM »
In my simple mind, I am counting on Fairfax to hedge me against apocalypse (since I am not a goldbugs so I only plan against apocalypse lite).  But just out of curiosity for the experts in the forum, is there a better way (i.e. cheaper way) to hedge this.  As far as I can tell, fairfax looks to be a pretty cheap hedge (given you still have one of the best investor working for you on the long side).  So the way I think of it as a couple of percent goes to the hedge as a form of cheap insurance.  Is there another way I should be thinking about this?

In “Margin of Safety”, where he discusses hedging, Mr. Klarman has written:

Quote
In the best of all worlds, an investment that has valuable hedging properties may also be an attractive investment on its own merits.

So, FFH really is “the best of both worlds”!  :)

giofranchi

“As time goes on I get more and more convinced that the right method in investment is to put fairly large sums into enterprises which one thinks one knows something about and in the management of which one thoroughly believes. It is a mistake to think that one limits one’s risk by spreading too much between enterprises about which one knows little and has no reason for special confidence.” - John Maynard Keynes
« Last Edit: February 15, 2013, 08:59:38 AM by giofranchi »
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Uccmal

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Re: Year-End Results
« Reply #21 on: February 15, 2013, 09:43:03 AM »
In my simple mind, I am counting on Fairfax to hedge me against apocalypse (since I am not a goldbugs so I only plan against apocalypse lite).  But just out of curiosity for the experts in the forum, is there a better way (i.e. cheaper way) to hedge this.  As far as I can tell, fairfax looks to be a pretty cheap hedge (given you still have one of the best investor working for you on the long side).  So the way I think of it as a couple of percent goes to the hedge as a form of cheap insurance.  Is there another way I should be thinking about this?

Not an expert by any means but I have tried buying puts (spy) a few times.  It has never worked very well.  The problem is that it inovolves many facets of market timing and there is no way to get to an estimate ofmintrinsic value.  It is much easier and cheaper to let FFH do it with their own hedges, or BRk do it via incoming cash. 

The FFh hedge has allowed me to buy vast amounts of US financials, and not have to be overly worried about them in a catastrophe situation.  If things went totally in the dumper FFH may make hundreds of dollars per share, and have money to invest at the best time.  In the meatime we eat a $50 per share non-cash loss but FFh still makes money.

GARP tending toward value

mhdousa

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Re: Year-End Results
« Reply #22 on: February 15, 2013, 09:46:50 AM »
In my simple mind, I am counting on Fairfax to hedge me against apocalypse (since I am not a goldbugs so I only plan against apocalypse lite).  But just out of curiosity for the experts in the forum, is there a better way (i.e. cheaper way) to hedge this.  As far as I can tell, fairfax looks to be a pretty cheap hedge (given you still have one of the best investor working for you on the long side).  So the way I think of it as a couple of percent goes to the hedge as a form of cheap insurance.  Is there another way I should be thinking about this?

Not an expert by any means but I have tried buying puts (spy) a few times.  It has never worked very well.  The problem is that it inovolves many facets of market timing and there is no way to get to an estimate ofmintrinsic value.  It is much easier and cheaper to let FFH do it with their own hedges, or BRk do it via incoming cash. 

The FFh hedge has allowed me to buy vast amounts of US financials, and not have to be overly worried about them in a catastrophe situation.  If things went totally in the dumper FFH may make hundreds of dollars per share, and have money to invest at the best time.  In the meatime we eat a $50 per share non-cash loss but FFh still makes money.

Al, what's your FFH:financials ratio?

kevin4u2

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Re: Year-End Results
« Reply #23 on: February 15, 2013, 09:58:54 AM »
They are taking a defensive approach and I can't blame them for it.

On the contrary! Imo, they should be praised for taking a defensive approach! Anyway, let’s put opinions aside for a moment. What really matters is they have the strength to behave like anyone should behave, except that no one else has the strength required to do so... It is anyone’s duty to assess risk, and to choose the proper course of action accordingly. When your judgment hints at a “high risk environment”, you must accept a 6.5% return, and not reach for yield, or try to outperform the market. It really doesn’t matter all that much if your judgment will be proven right or wrong. Because, most probably, sometimes it will be proven right, and sometimes it will be proven wrong. It is the discipline that matters. And we all know that, but we all experience great difficulties going from theory to practice… well, the best practitioner I know of is, without any doubt, Mr. Watsa!  :)

giofranchi


Well said Gio.  Prem is intelligent and rational while others only wish they were.

DynamicPerception

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Re: Year-End Results
« Reply #24 on: February 15, 2013, 10:31:54 AM »
These hedges are a two edged sword. It is defensive, but in no way it is fully safe to do so. If the markets go up and our investment portfolio don't, we get hurt.

Think about Noah ark. If it rains, we float while the others are underwater. If the sun shines, it get dry and we are thirsty.

I'm not complaining at all. It's just a fact that people need to remember.

Partner24 The only trouble with this type of analogy is it doesn't take into consideration the dynamics surrounding FFH's position.
There is a crew of guys monitoring things daily who are ready act/react quite quickly.
I know you know this but I always like to think about these guys and some of the interesting meetings they must have.

wisdom

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Tommm50

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Re: Year-End Results
« Reply #26 on: February 15, 2013, 02:34:15 PM »
I'm gratified to see the combined ratio came in under 100 (just). It's troubling however to see that it took a spectacular quarter and year for Odyssey Re.

Zenith and Crum & Forster are still bleeding money at a prodigious rate. I don't know what Prem's expectations for Zenith were but it's taking a long time to bring it in line. Other WC writers are doing much better. Crum seems like it's been a poor performer forever.

Anyway, big cash hoard, increase in book value despite the hedges and Sandy, good overall result. Let's hope this is the beginning of consistent improvement and those 15% annual returns we've been expecting.

Dazel

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Re: Year-End Results
« Reply #27 on: February 15, 2013, 02:48:16 PM »


While I love Fairfax and their team it is not a time to rejoice...for those looking for an education in investing and history....they have missed a great opportunity that Mr. Buffett and other rational people took advantage of...
No hedges you have a $650 stock....they know it...they slept well but that was the cost.

Dazel.

DynamicPerception

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Re: Year-End Results
« Reply #28 on: February 15, 2013, 03:13:40 PM »
Better to be safe than out of business.

Its a long way to $650.00.

Alekbaylee

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Re: Year-End Results
« Reply #29 on: February 15, 2013, 03:14:01 PM »
Fairfax is for patient/lazy investors. Otherwise, it can be frustrating.
I'm a 25% patient person; so I put 25% of my money in this stock and I try to forget about it.
I know it'll perform on the long run. Meanwhile I can play with other stocks.