Author Topic: 2017 Annual Letter  (Read 20154 times)

ValueMaven

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2017 Annual Letter
« on: March 06, 2018, 05:10:54 PM »
Should be out shortly...does anyone have an ETA?

Sincerely,
ValueMaven


ourkid8

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Re: 2017 Annual Letter
« Reply #1 on: March 06, 2018, 06:38:15 PM »
I believe it should be released Friday after market close...

Should be out shortly...does anyone have an ETA?

Sincerely,
ValueMaven
« Last Edit: March 07, 2018, 10:01:52 AM by ourkid8 »

ourkid8

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steph

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Re: 2017 Annual Letter
« Reply #3 on: March 10, 2018, 05:30:48 AM »
Best letter in a very long time!
Prem finally admits that hedging was a mistake and that the equity selection was very poor over the last years.  They will do no hedging anymore and there will be a change in the equity team.
Mistakes are human, we all make them.  But it is important to admit them, learn out of them and move on.  It seems that Prem was finally able to do this and it is very important for the future of Fairfax. 

FairFacts

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Re: 2017 Annual Letter
« Reply #4 on: March 10, 2018, 06:40:55 AM »
I too liked the expansion of the investment team and the additional responsibilities of the younger members.

PW restated the investment goals and 15% increase in BV target.

'With $40 billion in investments, a current run rate of $11.5B in net premiums written and $12.5B in common shareholders equity, we need an investment return of approximately 7% in order to achieve an annual increase in 15% in BV per share, assuming a consolidated combined ratios of 95%"........."We have drilled deeper and by analysing each of our 21 insurance companies we have estimated the investment return needed for each company in order to achieve our 15% target. We have delegated investment responsibility for each of our insurance companies to one member of our investment team".



FairFacts

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Re: 2017 Annual Letter
« Reply #5 on: March 10, 2018, 06:43:19 AM »
Looks like they have added positions in GM and GE since last 13-F was filed. (p23 half way down the page).

StevieV

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Re: 2017 Annual Letter
« Reply #6 on: March 10, 2018, 06:51:12 AM »
I too liked the expansion of the investment team and the additional responsibilities of the younger members.

PW restated the investment goals and 15% increase in BV target.

'With $40 billion in investments, a current run rate of $11.5B in net premiums written and $12.5B in common shareholders equity, we need an investment return of approximately 7% in order to achieve an annual increase in 15% in BV per share, assuming a consolidated combined ratios of 95%"........."We have drilled deeper and by analysing each of our 21 insurance companies we have estimated the investment return needed for each company in order to achieve our 15% target. We have delegated investment responsibility for each of our insurance companies to one member of our investment team".

If they get the 15%, I would expect some multiple expansion.  That would give shareholders a somewhat better than 15% return.  Certainly could double in 3-4 years if they get 15% BVPS growth over that time. 

Of course, actually achieving the 15% is the key.

karthikpm

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Re: 2017 Annual Letter
« Reply #7 on: March 10, 2018, 07:11:05 AM »
I worry that they are bullish at the wrong time ( market and valuation at highs). I think their portfolio of companies and operating performance is better than their earlier years, but their investing performance has been sub par .

StevieV

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Re: 2017 Annual Letter
« Reply #8 on: March 10, 2018, 07:30:44 AM »
I worry that they are bullish at the wrong time ( market and valuation at highs). I think their portfolio of companies and operating performance is better than their earlier years, but their investing performance has been sub par .

I think that is a fair concern, but if forward returns for the market are low, that could still mean significant outperformance for Fairfax.

Let's say they add and subtract no value in their investing.  If the market returns 7% CAGR over the next 5 years (and Fairfax matches the market), Fairfax thinks they can grow at 15%.  I don't think 7% is unreasonable, but the market may very well fall short of that.  Let's say the market returns 3% (and, again, Fairfax matches).  Fairfax wouldn't hit 15%, but could do very well on a relative performance basis against the 3% market.

Lots of assumptions baked in.  Just saying that Fairfax might be a good relative performer in a challenged equity market.

steph

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Re: 2017 Annual Letter
« Reply #9 on: March 10, 2018, 08:43:25 AM »
I worry that they are bullish at the wrong time ( market and valuation at highs). I think their portfolio of companies and operating performance is better than their earlier years, but their investing performance has been sub par .

They are not bullish. They still hold lots of cash. That is why they will never be able to achieve 15% with yields as low as they are today.  But if they even achieve 10% priced at book value today, and hoping for a rerating at one point in time to 1,5 times book, that would still be a great investment.
Investment performance has been poor on the equity (and hedging) side, but on the bond portion of the portfolio they are amazing.  The fact that they sold everything just before Trump got elected when long term yields were at 1,5% is a master stroke.  For an insurer the fixed income part of the portfolio is essential, and with Fairfax you have the best.