Author Topic: 2017 Annual Letter  (Read 21293 times)

petec

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Re: 2017 Annual Letter
« Reply #30 on: March 12, 2018, 04:33:14 AM »
I agree on above criticism by Stubblejumper and I really think that the culture is of questionable value here (as discussed in another thread) and I would rather see a culture change than preserving it.

i am not sure about this, but if it were not for realized gains, FFH would have shown an operating losss, due to underwriting losses (mostly from FFH) which interest income did not compensate for. Again, this can happen, but itís not a great result operationally. Did anyone notice thwt AWH (which they bought last year) had an understand ration above 100 before catastrophe losses? Not great either, hopefully itís a one off.

Also Premium blabbers a bit too much about all these small deals that  are with 1-2% positions (if not less) and while they work out well, they donít do all that much for the bottom line. They need to get big things right (AWH acqusition etc.)

I think the culture is phenomenally valuable. It's very clear to me Fairfax attracts and retains superb people and is increasingly a company that people want to sell to. Changing that would be madness. But that's not the same as saying power should be heritable. Power should go to the person best able to protect the culture.

I don't think I'd expect an operating profit (excl gains) in a big cat year, especially when interest rates are so low. I actually thought the underwriting results were phenomenal - if you look at the subsids FFH where FFH controlled the underwriting, i.e. excl AWH, FFH would have made an operating profit in a massive CAT year for the industry. That's extraordinary and not what I would have expected at all. AWH was awful but Prem was clear that they don't expect AWH's results to differ so substantially from FFH's going forward, which is a way of saying they'll influence the underwriting. The idea that one bad hurricane season somehow makes AWH - a company with a good history - a bad deal seems nuts to me. I suspect it'll be a home run. Could be wrong.

As for the investing, far better that they focus on putting together a series of asymmetric outcome 1s and 2s than try to do something big. I love the details on those.



Shane

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Re: 2017 Annual Letter
« Reply #31 on: March 12, 2018, 07:23:58 AM »
I thought it was curious that he didn't buyback more shares, but then realized he mentioned using FCF to buyback shares.  Has he indicated he will use the proceeds from First Capital/ICIC to fund repurchases directly that I may have missed?

If he intends to use FCF as the primary source of funding for repurchases, many people on this board will be very disappointed.

Dazel

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Re: 2017 Annual Letter
« Reply #32 on: March 12, 2018, 08:03:53 AM »



Fairfax closed the first capital, deal on Dec 28 2017....we have not seen any buy back numbers since that deal closed. They are limited in what they can buy back per day. I would like to see consistent buybacks at these levels....to the maximum they are allowed.

Once again there are different opinions on where Fairfax is....and thatís great it makes a market. The longer we stay cheap the better for a Singleton type buy back plan. Long term shareholders win...hard to imagine that anyone would be upset if Fairfax bought back enough stock so that the Watsa family once again owned the majority of the shares! If Fairfax operates like the plan is set out...shareholders will once again be very happy if not well....everyone will be grumpy including me! I have been around for the grumpy and I have been around for the euphoria.
I made ton of money during Grumpy times and would like to do it again!

ďYou canít buy whatís  popular and do well in investingĒ

Warren Buffett

petec

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Re: 2017 Annual Letter
« Reply #33 on: March 12, 2018, 08:11:23 AM »
If he intends to use FCF as the primary source of funding for repurchases, many people on this board will be very disappointed.

He's referenced Singleton and Teledyne before and in the letter. Teledyne issued to acquire for years and then turned the ship and bought back for years. The buyback is a long term thing. They can't put too much to work too fast - the stock isn't liquid enough, unless they do an SIB, but then they'd have to pay a premium - and they've never said they wanted to. Expect the share count to be much lower in 10 years but not necessarily in 10 months.

ourkid8

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Re: 2017 Annual Letter
« Reply #34 on: March 12, 2018, 08:54:35 AM »
The proceeds at the Holdco ( First Capital/ICICI) looks to be earmarked to buy out their joint venture partner OMERS to control Eurolife, Brit etc...

-"We expect to buy out OMERS within the next two years, so Eurolife will become a Fairfax insurance subsidiary. "
-"Fairfax currently owns 70.1% of Brit and has the ability to repurchase the shares owned by OMERS over time."

I thought it was curious that he didn't buyback more shares, but then realized he mentioned using FCF to buyback shares.  Has he indicated he will use the proceeds from First Capital/ICIC to fund repurchases directly that I may have missed?

If he intends to use FCF as the primary source of funding for repurchases, many people on this board will be very disappointed.
« Last Edit: March 12, 2018, 10:15:19 AM by ourkid8 »

gokou3

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Re: 2017 Annual Letter
« Reply #35 on: March 12, 2018, 09:39:28 AM »
If he intends to use FCF as the primary source of funding for repurchases, many people on this board will be very disappointed.

He's referenced Singleton and Teledyne before and in the letter. Teledyne issued to acquire for years and then turned the ship and bought back for years. The buyback is a long term thing. They can't put too much to work too fast - the stock isn't liquid enough, unless they do an SIB, but then they'd have to pay a premium - and they've never said they wanted to. Expect the share count to be much lower in 10 years but not necessarily in 10 months.

I vaguely remember there is a restriction by the TSX by how many % of O/S a company can buy back in a year under NCIB, as well as a restriction based on trading volume (i.e. not exceeding X% of daily volume).  Is anyone familiar with such rules on TSX?

ourkid8

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Re: 2017 Annual Letter
« Reply #36 on: March 12, 2018, 09:41:48 AM »
25% of the daily trading volume.

 
If he intends to use FCF as the primary source of funding for repurchases, many people on this board will be very disappointed.

He's referenced Singleton and Teledyne before and in the letter. Teledyne issued to acquire for years and then turned the ship and bought back for years. The buyback is a long term thing. They can't put too much to work too fast - the stock isn't liquid enough, unless they do an SIB, but then they'd have to pay a premium - and they've never said they wanted to. Expect the share count to be much lower in 10 years but not necessarily in 10 months.

I vaguely remember there is a restriction by the TSX by how many % of O/S a company can buy back in a year under NCIB, as well as a restriction based on trading volume (i.e. not exceeding X% of daily volume).  Is anyone familiar with such rules on TSX?

petec

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Re: 2017 Annual Letter
« Reply #37 on: March 12, 2018, 10:04:39 AM »
The proceeds at the Holdco (proceeds from First Capital/ICICI) looks to be earmarked to buy out their joint venture partner OMERS to control Eurolife, brit etc...

-"We expect to buy out OMERS within the next two years, so Eurolife will become a Fairfax insurance subsidiary. "
-"Fairfax currently owns 70.1% of Brit and has the ability to repurchase the shares owned by OMERS over time."

I think you're right and the same applies AWH eventually, I would think.

Viking

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Re: 2017 Annual Letter
« Reply #38 on: March 12, 2018, 10:09:21 AM »
The proceeds at the Holdco (proceeds from First Capital/ICICI) looks to be earmarked to buy out their joint venture partner OMERS to control Eurolife, brit etc...

-"We expect to buy out OMERS within the next two years, so Eurolife will become a Fairfax insurance subsidiary. "
-"Fairfax currently owns 70.1% of Brit and has the ability to repurchase the shares owned by OMERS over time."

I thought it was curious that he didn't buyback more shares, but then realized he mentioned using FCF to buyback shares.  Has he indicated he will use the proceeds from First Capital/ICIC to fund repurchases directly that I may have missed?

If he intends to use FCF as the primary source of funding for repurchases, many people on this board will be very disappointed.

I also wonder if this is why we are not seeing more aggressive share buybacks today. Buying the remainder of Allied World is also part of the bigger plan. The challenge is what is Allied World worth today? Given the size of the losses reported and the poor underwriting, it must be worth less than what it was purchased for. OMERS is going to want a premium.
« Last Edit: March 12, 2018, 10:12:39 AM by Viking »

Shane

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Re: 2017 Annual Letter
« Reply #39 on: March 12, 2018, 10:32:14 AM »
The proceeds at the Holdco (proceeds from First Capital/ICICI) looks to be earmarked to buy out their joint venture partner OMERS to control Eurolife, brit etc...

-"We expect to buy out OMERS within the next two years, so Eurolife will become a Fairfax insurance subsidiary. "
-"Fairfax currently owns 70.1% of Brit and has the ability to repurchase the shares owned by OMERS over time."

I thought it was curious that he didn't buyback more shares, but then realized he mentioned using FCF to buyback shares.  Has he indicated he will use the proceeds from First Capital/ICIC to fund repurchases directly that I may have missed?

If he intends to use FCF as the primary source of funding for repurchases, many people on this board will be very disappointed.

I also wonder if this is why we are not seeing more aggressive share buybacks today. Buying the remainder of Allied World is also part of the bigger plan.

It would make sense.  I'm struggling a bit with his mentioning Teledyne.  Singleton bought back shares because they were cheap and he lacked a better use of capital.  How can Fairfax know whether their shares will be cheap at any point other than the near term?  Buybacks should be done opportunistically.  I'm willing to give him the benefit of the doubt that he'll only make repurchases at attractive prices, but laying out a long-term plan to reduce share count doesn't make a lot of sense to me.
« Last Edit: March 12, 2018, 10:33:52 AM by Shane »