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Personal Buys — Hedging and Insurance

Quick pre-Friday portfolio note for the Irregulars

By Travis Johnson, Stock Gumshoe, December 20, 2016

I’ll write some more detail about this on Friday when I get to our Friday File for the week, but wanted just to note two personal purchases I’ve made.

I bought some shares of Franco-Nevada (FNV), a very small position at this point as I wade into it during this fall in the price of gold. I don’t know whether gold will recover and blast higher, will retest those lows around $1,000, or will fall to $700 as the dollar continues to surge… but I still think that buying at these valuations will be a good thing for my portfolio in the long term, helping to hedge against currency devaluation and possible real world crises in the years to come.

Right now gold is certainly getting clobbered, and this is not at all a bet that it will recover immediately — that is certainly possible, but for now gold is simply acting as an inverse trade for the dollar, which is climbing with rising interest rates… my guess is that interest rates aren’t likely to keep surging higher, so other dynamics may come into play as we flip the page of the calendar, but buying Franco-Nevada or any gold investment right now is really just a hedge against the fact that we have no idea what will happen next.

And in a larger move, I boosted my position in Fairfax Financial (FFH.TO, FRFHF) when those shares fell after their large announced acquisition of Allied World Assurance, another global insurer/reinsurer. Allied World is a good company, but it’s a little cheaper than Fairfax and less focused on investment returns… which makes it tempting to compare this to the spectacular acquisition Markel (MKL) made of Alterra a few years back. That acquisition caused Markel stock to fall sharply, but it recovered within a few months and has never looked back and, as the years have passed, the company has greatly enjoyed the added size and the increased investable cash on the balance sheet that they’ve put to use in more aggressive and effective ways than Alterra had been doing.

In many ways that’s the promise of this deal for Fairfax and CEO Prem Watsa as well — they get another big pool of investable cash in Allied World’s portfolio and float, and they will probably invest it more nimbly and aggressively than Allied World did… and the company ...

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