Author Topic: Fairfax 2017  (Read 50755 times)

Dazel

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Fairfax 2017
« on: July 28, 2017, 09:36:13 AM »

Hello all...

I feel it is time to way in on Fairfax Financial...by far my favourite company of all time. Some will remember I was here from the start when Sanjeev started posting...once again thanks Sanjeev for this forum!

We went through the lean 7 years...then we won big time in 2007 and 2008...the last lean 7 years were self inflicted wounds which at times looked like Prem and his team would be right. In fact if it were not for global central bankers they would have been right! The past however does not matter. Rear view mirror thinking is for the masses...

Fairfax today is nothing like the Fairfax of old...and after some serious thought of where Prem and his team are headed we have once again been buying their shares hand and fist.
Why?
Despite the dismal common stock returns over the last 7 years...Brian Bradstreet remains the single greatest Bond investor in the world...a Great portion of the 10 billion in gains have come from him while he generated interest income. He is the unsung hero of the bond world (check out his track record which include the cds wins from 2007 and 2008)...he gets a pass on the inflation hedges for sure! Now he has $40b to work with. We think Prem should use him for other investments which would include massive positions in Citigroup for example...which are typically viewed as common stock. The dividend yield and cash flow at Citi and Bof A can be looked at like a bond...as can their preferred shares...Let Brian play more! A 5% yield is $2 billion now!
We don't need the capital gains of the past....time to bend it like Buffett. Reality that is....Cash flow Cash Flow Cash flow....
Fairfax has become to big for Ben Graham principles...unless you are an activist. Which I am glad to say they are not....The Resolute, Torstar, And other value plays need someone to go in and create the value...that is not their game.
Prem's game is buying and building companies...Lombard is a huge win...buying the rest of
Orh,Nb,Zenith etc are massive home runs...runoff, Asian and global insurance operations are out of the park wins. What's Fairfax problem common stock investing!!!Who would have thought? Everything else in the company is world class.
I will reiterate from the past that I am biased and grateful because Prem and his team have made me a fortune since 2003...but I believe they have learned a very humbling and hard lesson since 2009.

Remember the big short? Of course you do. Steve Eisman? Blew up his fund...Mr. Burry...hope he is well, Ackman, etc....well fairfax has lost $5 billion in hedges since 2007 even with the $2b gain. So why am I looking back? Because Prem and his team have never ran a $40b portfolio in the past Fairfax thrived on capital gains. That is how they moved the needle...

The new Fairfax will resemble Berkshire Hathaway....the unfotunate part is Prem did not have Charlie Munger to tell him this 7 years ago...now it is all about quality. Allied is an example of this change in strategy which scared many...Markel has kicked Fairfax ass...by following Buffett's example early. Cash is the hedge....buy when distress comes you do not have to make money on the way down...welcome corrections to buy more cash flow. They have done this extremely well in buying whole companies and this will lead them to let Brian Bradstreet buy equities with cash flow coupons....

There is value in their broken down holdings Eurobank,Blackberry etc will come back somewhat but
that should not be the focus anymore...they are rounding errors compared to how much Cash flow that can be created with very good insurance operations...and simply matching the global stock indexes...they need 95 comps and a little over 5% returns on the now $40b investment portfolio to reach 15% return on equity. They will win big in India (doing great things there) and Greece will work out ok which will take the shares higher but it is the Cash flow culture that will make Fairfax future bright. We should expect Prem should tell shareholders that the shares are cheap (they are) and let shareholders know that he will buy huge amounts of stock if they remain here as warning and a heads up to existing holders. Mr. Buffett did this in 1999 this is the right thing to do even though it may take the shares higher and hurt the buy back potential...It is a class move as many have wondered on Fairfax's direction (obvious on this board!!!) they want to know that Fairfax has moved towards Berkshire Hathaway....they have already...investors just don't know it.

Disclosure:I am betting that Fairfax gets it right....big time.

Cheers,

Dazel


cwericb

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Re: Fairfax 2017
« Reply #1 on: July 28, 2017, 10:01:01 AM »
Thanks for this Dazel. Think you are right on in what you say. A lot of people seem to overlook the fact that Fairfax has been building a world class insurance company over the past few years.

Believe Fairfax are releasing Q2 results next week. May be interesting. Brian Bradstreet didn't buy 2,000 shares last month just for fun.

Welcome back "newbie".  :)

Any chance of getting your 2 cents worth over on the ALS thread?

havingheart

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Re: Fairfax 2017
« Reply #2 on: July 28, 2017, 10:19:34 AM »
Welcome back!!  I also second the ALS input, but only if it's possible.

Dazel

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Re: Fairfax 2017
« Reply #3 on: July 28, 2017, 11:16:42 AM »

I will comment on Altius as they are now a Fairfax company :)!
Linealdin and others have  done a fabulous job on that thread...can't add much other than Brian Dalton and his team will win in the end they are world class and it looks like Altius will buy back a lot of stock which is a very very good sign...and also I expect Fairfax to participate in other large deals along side them which will be big winners for both companies.

It's a theme...good businesses with great managers.

SharperDingaan

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Re: Fairfax 2017
« Reply #4 on: July 28, 2017, 02:13:02 PM »
Welcome home, we missed you  ;)

SD

warrior

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Re: Fairfax 2017
« Reply #5 on: July 28, 2017, 07:16:45 PM »
Welcome back Bro.we missed you

nwoodman

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Re: Fairfax 2017
« Reply #6 on: July 28, 2017, 08:41:52 PM »
Quote

Disclosure:I am betting that Fairfax gets it right....big time.

Cheers,

Dazel

Agree with your comments and adding significantly also.   They have really stepped it up this year and grown IV significantly. At these prices it is a 1' hurdle by my reckoning.

Cheers

nwoodman

chrispy

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Re: Fairfax 2017
« Reply #7 on: July 29, 2017, 06:51:45 AM »
Thank you for the post and I also agree that the future is bright. 

Following your Citigroup train of thought, that is what they are doing with the Westaim, Altius, etc. preferred share deals with ~5% interest, right?  I believe that in the letter to shareholders he mentioned wanting to do more of these deals. 

petec

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Re: Fairfax 2017
« Reply #8 on: July 31, 2017, 07:24:10 AM »
To what extent did Fairfax help build Lombard?

Dazel

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Re: Fairfax 2017
« Reply #9 on: August 01, 2017, 03:13:39 AM »

Petec,

I had a long winded response that I lost...do not have a lot of time...so here is the quick answer!

-Lombard Canada was folded into Northbride which was the foundation of Fairfax...that growth came from Markel Canada (a small trucking insurer) that was recapitalized from $3m a year premium Company into a global powerhouse with $14b in premiums

-2001 Lombard-ICICI started commercial insurance operations to become the largest commercial insurer in India...the extent of Fairfax involvement I do not know but Prem served on the board of ICICI bank from 2004-2011 (Fairfax made a Lot of money in their shares) and ICiCI-prudential board as well (they went public last year)

-Fairfax involvement in raising capital and their trustworthy actions make them the go to foreign source of capital for Indian companies.

-They will build a large insurance footprint in India as they have been directly involved in building out the insurance market there for over a decade....they have to sell their Lombard position to 10% to do this....

-The $5bin capital they have invested in India has a first mover advantage but it is the reputation of Prem Watsa and Fairfax that has tremendous value. they are the go to foreign company for raising capital and selling assets.

-India is growing at 7% and will be source of global growth over the next decade...Prem has voiced his optimism over this and put his money where his mouth is. The Lombard-ICICI should not be viewed as an exit of insurance in India...in fact Fairfax would like a bigger piece of the pie by controlling their own operations

- this does two things...the sale allows the cash to flow directly into the Holding company for buy backs and will NOT effect profitability as it is a very small piece of Fairfax global premiums

-the build out of their insurance operations in India will be done with large cash reserves in the insurance companies...

-Prem Watsa has evolved from the "Canadian Warren Buffett" into a global player and India will be a big piece of that as their investment of time, patience, and trust is paying off in a country where it is very difficult to gain entry. Global investors will take notice as we have because we cannot get the deals that Prem is getting (sound like Warren Buffet?). Fairfax India large share price rise this year is an indication of investors view on the growth opportunities....Fairfax India is too small an investment vehicle for the big players...they will gravitate to Fairfax as we have seen with Mason Hawkins Long Leaf Funds reentry as shareholders.

-in a perfect world we will see the Lombard sale' proceeds all go into share buy backs before the investing world wakes up to this story.