Author Topic: 2017 Annual Letter  (Read 18721 times)

Dazel

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Re: 2017 Annual Letter
« Reply #50 on: March 13, 2018, 04:10:27 AM »

There was a lot of discussion on bond losses that Fairfax would possibly take on their bond portfolio after the sell off that has occurred in the bond market. Fairfax hedged the portfolio in 2016 and again in 2017...100 basis point rate increase would be $150m loss (page104 2017 annual). As suspected they are in a position to take advantage  of higher rates unlike many others with large bond portfolios that will take large losses to their principal. Most reached for yield....their earnings of the past will be inflated where as as the earnings power of Fairfax has been hidden by their large cash balance and hedging of rates. Great job once again Mr. Bradstreet! 2018 looks very promising.


Cardboard

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Re: 2017 Annual Letter
« Reply #51 on: March 13, 2018, 06:04:21 AM »
"Can someone please comment on Brian Bradstreetís bond record itís astonishing And there is no one close globally over 5,10,20, 30 years!!!!! No one. He is a legend and no one will comment on it..."

"Great job once again Mr. Bradstreet! 2018 looks very promising."

Dazel, you seem to have a lot riding on Mr. Bradstreet. I would suggest that maybe you should read between the lines. The guy is about to retire:

"With Roger Lace, Brian Bradstreet and I having worked together for over 40 years, we felt it was time to begin the
transition to a younger group for the management of our investment portfolios, of course supervised by the three of
us."

Cardboard

Value^2

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Re: 2017 Annual Letter
« Reply #52 on: March 13, 2018, 07:32:40 AM »

Fairfax who have supposedly lost their touch because most want to forget their long term record.
..have missed the fact Bradstreet has remained at the top of his game in any time period you want to look at over the last 32 years (In 1999 and 2000 he would have underperformed) the dismal last 9 years for HW he has destroyed Gundlachís Double line record  since inception itís inception. Bradstreet is the bond king!

Many of us want's to ignore their long term record (from the beginning)  because they're influenced by their first two years in business which were anomaly (fraud).
« Last Edit: March 13, 2018, 07:36:17 AM by Value^2 »

ourkid8

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Re: 2017 Annual Letter
« Reply #53 on: March 13, 2018, 09:46:51 AM »
I did a quick search of the last 10 years of shareholder's letters and Prem only referenced that he plans to repurchase stock in the last 2.  Last year they were digesting the acquisitions + unlocking value (ICICI/First Capital) and this year I strongly believe Prem will keep to his word and repurchase stock with FCF.  I understand your doubts as actions speak louder than words so we will have to wait until Q1 earnings are released. 

Without using the capital that was unlocked from ICICI / First capital, I do not see them aggressively repurchasing stock via a tender offer.  They will slowly repurchase shares in the open market which is rather unfortunate especially at the current price however that is what he is guiding. 

"Having said that, we are raising our threshold for acquisitions now so as to benefit from the ones we have already made Ė and to buy back our stock." -March 10, 2017 annual letter
"Henry Singleton, at Teledyne, reversed this trend, as you know, and over the next ten years we expect to do the same Ė use our free cash flow to buy back our shares!" - March 9, 2018 annual letter

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 are attractive prices, but laying out a long-term plan to reduce share count doesn't make a lot of sense to me.

Agreed, but he hasn't made a commitment and they are value monkeys at heart. My guess is they will be very disciplined. I think of it more as a floor, like the Buffet 1.2x BV floor.

That said he clearly thinks IV is well above book so it will be interesting to see where they stop!


Prem talking about buybacks is a bit like a teenager talking about sex.  They both engage the subject with a great deal of enthusiasm, but when the rubber hits the road (or something!), they don't actually do it anywhere near as often or as successfully as their optimistic plans would suggest.  Working from memory, Prem has made enthusiastic references to buybacks in about half of the annual letters -- on some occasions promising to go on offence while on other occasions trying to contextualize a share issuance.

My observation is that Prem is a serial acquirer, picking up a new meaningful sub every second year or so.  As long as that's his approach, FFH will be capital constrained.  There will be no meaningful buyback unless he runs out of insurance subs to buy and actually allows cash to accumulate for a couple of years.

While I'm not shy to criticize Prem's management when I think it is merited, in this case it amounts to a question of the relative value proposition of buying your own shares vs buying somebody else's.  He mostly finds reasonably priced subs to acquire, so it's not obvious that buybacks would necessarily have been better.

Going forward, my sense is that FFH could throw a Bil at buybacks during 2018 if it so desired.  A tender offer for 2m shares at US$550 would likely get the desired response.  But, I would be shocked to see it happen.  I'm guessing that the over/under for sharecount in 2023 would be 30m.


SJ
« Last Edit: March 13, 2018, 12:05:07 PM by ourkid8 »

Dazel

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Re: 2017 Annual Letter
« Reply #54 on: March 13, 2018, 09:49:05 AM »


Cardboard,

Wouldn't that be nice if Prem et all retired! Then we would have that new culture we are looking for!
LOL.
Bradstreet has another $10b in him before he is done...the math is on his side!

Cheers!

Dazel

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Re: 2017 Annual Letter
« Reply #55 on: March 13, 2018, 10:03:21 AM »

That's $10b in bond gains...Bradstreet was buying more shares in August...the Fairfax team is putting on the foil! They are a competitive bunch a couple of strong years will put them in performance in per share book value growth and market appreciation of a handful companies in history have achieved. Bradstreet's record alone to me is just amazing. Make no mistake this is a tight team though. They are bruised not beaten.
I have been loud and proud...but it's the numbers that matter...we will see.

racemize

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Re: 2017 Annual Letter
« Reply #56 on: March 13, 2018, 10:39:10 AM »

Fairfax who have supposedly lost their touch because most want to forget their long term record.
..have missed the fact Bradstreet has remained at the top of his game in any time period you want to look at over the last 32 years (In 1999 and 2000 he would have underperformed) the dismal last 9 years for HW he has destroyed Gundlachís Double line record  since inception itís inception. Bradstreet is the bond king!

Many of us want's to ignore their long term record (from the beginning)  because they're influenced by their first two years in business which were anomaly (fraud).

I realize you appear to only post in FFH to bash Prem and the investments, but just for everyone else who is interested, compounding rate for book value per share excluding the first two years is ~15%.  Seems pretty good to me.

racemize

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Re: 2017 Annual Letter
« Reply #57 on: March 13, 2018, 10:54:43 AM »
On the topic of sharebuybacks, I have all the letters, so I searched over the whole period for buyback/repurchases (similar to ourkid over last 10 years).  Here's what I found:

From 1988-1992 they repurchased 34% of outstanding shares.  Discussion of this buyback happened afterwards mostly.

Mentioned buybacks again in 1996/7, first mention of Singleton.  Did not emphasize they would do it, just that they would consider it first.

In 1999-2000, they talked about repurchase similar to 1988-1992 period.  Looks like they repurchased ~1,000,000 shares.  Then had to issue shares to 2005 due to the well-known issues.

Repurchased 1,000,000 shares in 2008.

In 2010, they said "Please do not think we have forgotten about common stock buybacks. We have historically purchased significant amounts of our stock, but have recently chosen instead to buy some excellent companies which became available and that we think will create significant intrinsic value in the future."

Then in 2016 buybacks were mentioned and in 2017, there was a strong emphasis on buybacks that we all read.

So, outside of 1999/2000 it doesn't seem like they overpromised and underdelivered on share buybacks given what they said.
« Last Edit: March 13, 2018, 10:56:48 AM by racemize »

Viking

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Re: 2017 Annual Letter
« Reply #58 on: March 13, 2018, 11:17:13 AM »
On the topic of sharebuybacks, I have all the letters, so I searched over the whole period for buyback/repurchases (similar to ourkid over last 10 years).  Here's what I found:

From 1988-1992 they repurchased 34% of outstanding shares.  Discussion of this buyback happened afterwards mostly.

Mentioned buybacks again in 1996/7, first mention of Singleton.  Did not emphasize they would do it, just that they would consider it first.

In 1999-2000, they talked about repurchase similar to 1988-1992 period.  Looks like they repurchased ~1,000,000 shares.  Then had to issue shares to 2005 due to the well-known issues.

Repurchased 1,000,000 shares in 2008.

In 2010, they said "Please do not think we have forgotten about common stock buybacks. We have historically purchased significant amounts of our stock, but have recently chosen instead to buy some excellent companies which became available and that we think will create significant intrinsic value in the future."

Then in 2016 buybacks were mentioned and in 2017, there was a strong emphasis on buybacks that we all read.

So, outside of 1999/2000 it doesn't seem like they overpromised and underdelivered on share buybacks given what they said.

Thanks for doing the research... always good to get the facts :-)

StubbleJumper

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Re: 2017 Annual Letter
« Reply #59 on: March 13, 2018, 11:17:50 AM »
On the topic of sharebuybacks, I have all the letters, so I searched over the whole period for buyback/repurchases (similar to ourkid over last 10 years).  Here's what I found:

From 1988-1992 they repurchased 34% of outstanding shares.  Discussion of this buyback happened afterwards mostly.

Mentioned buybacks again in 1996/7, first mention of Singleton.  Did not emphasize they would do it, just that they would consider it first.

In 1999-2000, they talked about repurchase similar to 1988-1992 period.  Looks like they repurchased ~1,000,000 shares.  Then had to issue shares to 2005 due to the well-known issues.

Repurchased 1,000,000 shares in 2008.

In 2010, they said "Please do not think we have forgotten about common stock buybacks. We have historically purchased significant amounts of our stock, but have recently chosen instead to buy some excellent companies which became available and that we think will create significant intrinsic value in the future."

Then in 2016 buybacks were mentioned and in 2017, there was a strong emphasis on buybacks that we all read.

So, outside of 1999/2000 it doesn't seem like they overpromised and underdelivered on share buybacks given what they said.

So, if I've understood you correctly, your money is on repurchases rather than acquisitions?  I'm clearly on the other side as Prem always seems to find a target that he finds attractive.To buy back say $1b of shares, the normal course issuer bid hardly seems adequate.  I guess we'll see whether there's a tender offer.   Time will tell



SJ