Corner of Berkshire & Fairfax Message Board

General Category => Fairfax Financial => Topic started by: wondering on January 04, 2018, 08:39:34 AM

Title: Fairfax 2018
Post by: wondering on January 04, 2018, 08:39:34 AM
Fairfax does another debt plus warrants deal.  $250 million in 5.5% unsecured debs plus Class A common warrants in Seaspan.

http://splash247.com/fairfax-invests-seaspan/
Title: Re: Fairfax 2018
Post by: racemize on January 04, 2018, 09:22:40 AM
Fairfax does another debt plus warrants deal.  $250 million in 5.5% unsecured debs plus Class A common warrants in Seaspan.

http://splash247.com/fairfax-invests-seaspan/

UCCMAL, feel like giving us any SSW related updates?  I think this is one you followed for a long while?
Title: Re: Fairfax 2018
Post by: Dazel on January 04, 2018, 10:18:47 AM
https://timesofindia.indiatimes.com/business/india-business/with-29-growth-indian-mkts-end-2017-with-a-bang/articleshow/62301071.cms

Title: Re: Fairfax 2018
Post by: netnet on January 04, 2018, 02:14:07 PM
I am not close observer of Fairfax, but from a quick look it seems as if we are in the historically low range of price to book.
Title: Re: Fairfax 2018
Post by: Dazel on January 07, 2018, 09:34:00 AM


Net Net.
You are correct and that is why I would like to see a big chunk of the float bought back...the holding company should have over $2.5b in cash.

2018 the contrarians will win.
Title: Re: Fairfax 2018
Post by: Dazel on January 09, 2018, 11:42:12 AM


Buy the shares Prem Buy them hand over fist lets see Fairfax get aggressive......show us how undervalued you think Fairfax is. It’s the only deal in the market.
Title: Re: Fairfax 2018
Post by: racemize on January 09, 2018, 05:27:56 PM
I've got a rough adjusted book value at $448.5, which includes the $33 BVPS bump on the sale.  Is there more to adjust by?
Title: Re: Fairfax 2018
Post by: chrispy on January 10, 2018, 03:43:52 AM
As discussed in another thread, the major stock holdings are doing well.  I quickly put this together but need to head off to work.  Only need the share count:

Ticker          Shares   11/2/2017   1/10/2018   % increase   Increase in BV
BB             96,700,000   $10.78   $14.40             33.58%   $350,054,000.00
RFP                   TBD          $5.85   $11.10             89.74%   
EGFEY               TBD           $0.44   $0.52             18.88%   
KW                   TBD           $19.55   $17.75             -9.21%   
IPI                   TBD           $3.91   $4.22             7.93%   
USG                  TBD           $34.45   $39.90             15.82%   
Title: Re: Fairfax 2018
Post by: Dazel on January 10, 2018, 03:56:54 AM


And just like that...Fairfax is brilliant.
The key to Fairfax is the $40b investment portfolio...and the secret to the math and future earnings as I have stated many times is Brian Bradstreet and the bond portfolio. He is the best bond manager in history I challenge anyone to refute that with his record. No one other than Mr. Buffett has held massive amounts of cash in their portfolios. They have reached for yield and they are about to get smoked. Fairfax will make a killing on the interest rate spike. As we will be able to secure years and years of cash flow. It’s just the beginning of the bond bear market. As usual Brian and Fairfax are ready.

Guns
Gold
And Fairfax
Title: Re: Fairfax 2018
Post by: petec on January 10, 2018, 05:22:24 AM

And just like that...Fairfax is brilliant.


:) ha!

Nice to see that the earnings power of a 2y treasury has doubled in the last year, which basically gives us an extra $250m in potential income off a $25bn cash and bond portfolio without taking meaningful duration risk. Lovely to be at the short end when yields rise! Very impressive switch by Bradstreet considering how long he was at the long end for. (Some idiot will whinge that he was 5 months too early but good luck timing it better.)

Title: Re: Fairfax 2018
Post by: gary17 on January 10, 2018, 07:49:08 AM
I've got a rough adjusted book value at $448.5, which includes the $33 BVPS bump on the sale.  Is there more to adjust by?

I assume this is USD , not CAD !

thanks:)
Title: Re: Fairfax 2018
Post by: racemize on January 10, 2018, 08:31:40 AM
As discussed in another thread, the major stock holdings are doing well.  I quickly put this together but need to head off to work.  Only need the share count:

Ticker          Shares   11/2/2017   1/10/2018   % increase   Increase in BV
BB             96,700,000   $10.78   $14.40             33.58%   $350,054,000.00
RFP                   TBD          $5.85   $11.10             89.74%   
EGFEY               TBD           $0.44   $0.52             18.88%   
KW                   TBD           $19.55   $17.75             -9.21%   
IPI                   TBD           $3.91   $4.22             7.93%   
USG                  TBD           $34.45   $39.90             15.82%

From the Q3 report there are 27,940,806 - 166,300 = 27,774,506 effective outstanding.  That adds $12.6 to BVPS.
Title: Re: Fairfax 2018
Post by: Dazel on January 10, 2018, 08:40:06 AM

Gary yes it is.

I thought people were averaging down in bitcoin not paying attention...
Disclosure:I have bought fairly large everyday this week.
Title: Re: Fairfax 2018
Post by: Dazel on January 10, 2018, 09:55:26 AM

I am going to share Bradstreet’s secret strategy that makes him maybe the best bond guy maybe ever.

Wait for it....patience....and he has math on his side he misses the bond losses and buys higher rates... I have seen him do this 4 or 5 times...albeit with smaller sums of money...but he has made billions doing it. You note he sold saving billions in cap losses in 2016 a week or two before yields spiked....

For the financial industry everyone cheers higher rates but they don’t realize is tHat the immediate effect of higher rates are very large bond losses. The interest rate effect takes time as short maturities
Need to run off and they purchase longer dated higher yield bonds as they do.

Bradstreet when he feels he is right sells bonds usually at a profit and goes to cash and short term maturities (where we r now) so when rates spike higher Fairfax experiences small to 0 losses and he reallocates to longer dates high interest bonds. His market timing in this regard is unmatched...he ran into temporary trouble in late 1999...2000 with unrealized losses...these turned into massive gains that likely saved Fairfax from the shorts in 2003. And made me a small fortune(thank you Brad!).

He did it again in2008 selling treasuries at the top Andy buying 7% Berkshire guaranteed tax free Muni’s...crazy good.

Now with almost $40b I get gitty thinking about what he can do in a rising rate environment. It is not just the cash flow....he has taken shorter term big profits on treasury moves...many times. He is the key to Fairfax $1000.


Title: Re: Fairfax 2018
Post by: Viking on January 10, 2018, 09:57:26 AM
One of the questions to Gundlach yesterday in his call was “what bond would you buy today” and his answer was the 2 year treasury.

He said if the US 10 year yield moves north of 2.63% then yields likely will keep going to 3% this year. We are at 2.58% today so getting close. He thinks the 3% level is the one to watch on the US 30 year; if yields move higher he said you can call the end of the 35 year bull market in bonds.

If is time to review what FFH is doing with their bond portfolio. Their positioning there may be setting them up for the next big investment gain. Everyone is looking at FFH and looking for gains in stocks as the next big catalyst in the share price; perhaps we are looking at the wrong asset class.
Title: Re: Fairfax 2018
Post by: Viking on January 10, 2018, 10:08:47 AM
I've got a rough adjusted book value at $448.5, which includes the $33 BVPS bump on the sale.  Is there more to adjust by?

I assume this is USD , not CAD !

thanks:)

How do people think about goodwill when calculating book value?
Title: Re: Fairfax 2018
Post by: Dazel on January 10, 2018, 10:14:22 AM
Viking You are.
It’s math....size matters....Bradstreet will be in charge of the bulk of the $40b....he called a Treasury top in 2016...he was right. No offence to Mr.Gundlach (I like him) and he manages more money than Bradstreet but his record is NOT even close to Brads. Check the numbers they will blow you away and that has Bradstreet holding cash for sometimes for long periods of time.

Prem and his team will do well but they will not be allocating the amount of capital Bradstreet has and will. This is what Longleaf refers to with Fairfax earnings power being under appreciated because of their large cash reserves. While most refer to Prem as he is the captain of the Fairfax ship...Bradstreet is the key to moving the portfolio needle.
Title: Re: Fairfax 2018
Post by: Dazel on January 10, 2018, 10:18:34 AM
You can forget book value for Fairfax right now it underappreciates their insurance operations....and the power of the$40b portfolio (that is 43% cash). First Capital was an example of this....was sold for 3xbook....without the benefit of the investments.
Title: Re: Fairfax 2018
Post by: Dazel on January 10, 2018, 10:26:46 AM


This is what Prem is taking about by the company being as cheap as it has ever been looking at intrinsic value. We will do best if Fairfax stays or falls from here and we get to purchase-shares  until Fairfax becomes fully invested. When that happens the market will realize what is there...they have been swimming with one arm for awhile.
Title: Re: Fairfax 2018
Post by: buylowersellhigh on January 10, 2018, 10:29:38 AM
Is there a gathering of CoBF members before the Fairfax Annual Meeting?  Usually I see a message posted.  Or too early?

TIA,
BLSH
Title: Re: Fairfax 2018
Post by: chrispy on January 10, 2018, 11:54:35 AM
It seems very difficult to know the right time to sell the bonds but it seems even more difficult to know when to buy back into them. Any thoughts on that dazel/viking?
Title: Re: Fairfax 2018
Post by: Viking on January 10, 2018, 01:00:27 PM
Chrispy, I agree with Dalzel that in Bradstreet, FFH has one of the best bond managers so at an inflexion point like we are at right now in the bond market (from long term bull to bear market) I think you want to go with the firms that have the best people and trust that they will get it (mostly) right.

I have been reviewing what FFH has done with its bond portfolio since Q4 of 2016 and they look like they have absolutely nailed it (shifting out of long dated bonds to short term maturities). Below is the change in US interest rates just in the past 14 months. Amazing. If the Fed raises 4 times this year, yields will be climbing (short and long end). Who is going to want to own long dated treasuries moving forward? I am very interested to see what FFH has done with the Allied bond holdings when they report Q4 results.

            Nov 1 2016    Jan 9, 2018
1 year.     0.65               1.78
2 year.     0.83               1.98
10 year.    1.83              2.55
30 year.    2.58              2.88

In terms of what bonds to buy today, as I said earlier, Gundlach said 2 year treasury was the place to be. He said the yield differential (2 year versus 10 year) is not large enough to offset the risk of much higher rates (of 10 year). The 2 year has a decent yield; hold to maturity and reinvest in two years at likely much higher rate. You will not make a killing with this strategy. However you will make a positive return. Gundlach feels there is a reasonable chance the 10 bond yields will rise to 5-6% in the next 4 years. If this happens investors who hold 10, 20 or 30 year bonds will get killed. If Fairfax’s competitors are not careful losses on their bond portfolios may be material (potential catalyst for hard market in insurance?).
Title: Re: Fairfax 2018
Post by: petec on January 11, 2018, 09:04:46 AM
While I agree, the change of tone (on the board, not from specific members) amuses me. A year ago Fairfax were investment morons and could do no right. And then 2017 happened...

Same people, same philosophy, different years.

Next the market will crash and they'll be stupid for having sold the hedges ;)
Title: Re: Fairfax 2018
Post by: RichardGibbons on January 11, 2018, 10:25:09 AM
I agree that there's a change in tone.  I think it's largely the result of different people posting, as opposed to people who were bearish becoming bullish.
Title: Re: Fairfax 2018
Post by: Viking on January 11, 2018, 12:12:54 PM
Petec, I think the difference is a year later we all have a little more information. FFH has largely monetized ICICI Lombard. FFH has monetized First Capital. I think the size of both of these gains was much, much larger than most expected. I think they may have $2.5 billion in cash at the holding company when they report Q4 results and this is much more than a year ago.

FFH India has performed exceptionally well driven by the extraordinary gains of the Indian market. Again, I think performance was much better than most people expected at the start of the year.

Many of FFH large equity holdings also outperformed over the year: BlackBerry and Resolute come immediately to mind.

The re-positioning of the massive bond portfolio (moving to low duration) continues to looks like a very smart move.

The one blemish all year was the underwriting performance of Allied and Brit; This will need to be monitored moving forward. However, if all the hurricanes in 2017 results in a hard market there may be some benefit moving forward.

When I weave it all together, from my perspective, a lot of very good material things have happened at FFH in 2017. And as a result, 2017 YE reported book value will be significantly higher than 2016. Perhaps US$435 versus $367?

Where have the shares traded In mid January each year?
2018 = US $524
2017 = $470
2016 = $486
2015 = $505

And when you look at the FFH of even 18 months ago (and how it’s investment portfolio was positioned with all of the equity hedges) the changes are even more stark.

I have been very lucky with my investments in FFH over many years (from 2003 to 2009); these investments put me in a very good situation financially. One of the key reasons I invested in FFH is I felt I understood (somewhat) and liked how they were invested. This confidence allowed me to be patient and take advantage of the volatility (loading up on shares when they got crazy cheap). Since 2012 I have not liked how FFH was invested (especially the massive equity hedges). And yes, this stopped me from holding the shares for many years. Much has changed at FFH in the past 18 months and as a result of these changes my opinion of owning the shares has also changed. I now own a small position. If the shares get cheaper I will likely buy more :-)
Title: Re: Fairfax 2018
Post by: StubbleJumper on January 11, 2018, 12:26:48 PM
While I agree, the change of tone (on the board, not from specific members) amuses me. A year ago Fairfax were investment morons and could do no right. And then 2017 happened...

Same people, same philosophy, different years.

Next the market will crash and they'll be stupid for having sold the hedges ;)


Well, 2015 and 2016 were tough years to be a FFH shareholder and, based on some of the comments on this board and the lack of attendance at Sanj's annual supper, many long-term shareholders sold out.  They were tough years because financial performance was limited by the equity hedges, which were abruptly dropped after the US presidential election, and in 2015 Prem usurped minority shareholders' rights by changing the provisions of his multiple voting shares.  It's tough for a shareholder to endure poor financial results and then accept a 180-degree change in investment philosophy based solely on the faint hope of liberalization of the US economy by a new president.  And its tough for a shareholder to accept that our "managing partner" doesn't trust us enough to let us continue with our unfettered voting rights.  Frankly, I'm not particularly surprised that many long-time shareholders were unhappy and sold out.

If Sanj organizes another supper in Toronto this spring, it will be interesting to observe the level of interest.  I'd say that many people voted with their feet and will not re-establish a large position in FFH.

Personally, I have held my nose and maintained my position over the last number of years.  After having marked time for the past 5 years, the investment portfolio looks like it is well positioned to make some decent returns in the coming years.  Even FFH's ridiculous "error of commission" in the sizing of its Blackberry position seems have been redeemed (now they just need to find an exit-strategy).  So, things are looking somewhat positive, but that comes after 5 or 6 years of some head-scratching decisions.


SJ
Title: Re: Fairfax 2018
Post by: petec on January 11, 2018, 01:25:06 PM
Viking and SJ - while everything you post is true, I take a slightly different approach with FFH. I decided a long time ago that a) I like the float-investment model; b) I trust Prem and his team and the culture they are building; and c) that they are smart people who will make more good decisions than bad over time. So I decided to hold the shares long term (unless they got to a silly valuation) and see what happened.

Maybe that's naïve - many would say so. But then again all investment managers go through good patches and rough ones, and if you can't stick the rough patches you seldom compound with them. So far I am very happy with the results, although I will admit that keeping the faith was easier in 2015/6 by the fact that I agreed with the hedges! Oops! where Prem and team beat me hands down is I wouldn't have taken them off when they did. Big oops, but then that's why I let them manage some of my money!

Anyway, that's why I don't really feel we have more info than a year ago. We have more precise data on the value of certain subs and investments, yes. But what creates the value is the people and the culture, which has proven itself over 30 years, and that hasn't changed in the last 12 months.

I accept that the ratio between the "surfaced" value per share and the share price has changed, but that only explains why people are more bullish on the shares. It does not explain why Fairfax has gone from hero to zero, from dumb to smart. I honestly think that anyone who has changed their mind on that in the last 12 months simply didn't know the history or isn't being rational. However as RG said, the tone has changed because different people are posting so it is a moot point.

I'm not trying to start a fight here, BTW, so I slightly regret my initial post.
Title: Re: Fairfax 2018
Post by: Dazel on January 11, 2018, 01:53:38 PM

Those are great posts....really dead on....I agree with what you are saying.

A couple of quick points of why I am back heavy...

1. Value investing was left for dead in 2015
2. Fairfax were wrong on Greece and their large individual positions on the worst hedges in history.....truly got killed making* the 2007-2008 win a disaster...they did not change their mind and were stuck in that state of mind....absolutely terrible performance...maybe the worst hedging program I have ever seen. They were a man with a hammer and every short position was a nail!
3. With the massive investment losses of those years the true operating strength of Fairfax was masked and missed...humility sucks but it was Prem and his equity side that were terribly wrong. I believe they will right the ship. It was a big and bold move to eat S...t and remove the hedges and I applaud them for the strength they showed doing it.
4. Brian Bradstreet continued to absolutely kill it compared to his peers in a low interest rate environment
5.2017 would have been a record transformational year without the huge insurance losses...that is their business but the year was record losses for industry
6. Insurance market is not hard but prices are rising 10-30% depending on the line and where
7.Fairfax is now a $15b a year premium company at just the right time...expect the new India insurance company to create huge value as well
8.$2.5b in cash at the holding company means an upgrade from the ratings agencies bringing down debt costs, and expect very large buybacks
9.$40b investments are set up for rising rates , the dead  beat equity investments are rising sharply, expect Greece to the same
10. Prem told us all in April that the insurance companies were greatly undervalued and book values did not properly value Fairfax...he went out and proved it with $2.6b in gains from two “Small” insurance operation sales...First Capital may be the best deal Fairfax has ever made. What do you think Odyssey is worth if he sold it? A lot...he is not going to of course.

The last time I took a chance believing in Prem and his Fairfax teams redemption it was a euphoric outcome. I expect the same this time around.

P.S stop buying the damn shares...lots of bitcoin and pot stocks out there!
Title: Re: Fairfax 2018
Post by: Cigarbutt on January 11, 2018, 02:58:48 PM
Dazel,
Agree with most of what you put on your list.

For point 3, I'm not sure. The way the hedges were set up has been discussed. If what you say is true, I just wish they would have come out with the real reasons behind the change in strategy (hedges too large, too early, no longer sustainable with the release of "animal spirits" etc).

For point 6, from what I read, price increases are lower and not widespread. Despite record losses, 2017 events barely met the definition of capital events and "alternative" capital continues to be plentiful.

I agree that it will be interesting to see how and when they deploy their huge liquid capital position.
The financial outcome also has a lot to do with their ability to participate in the hard market which will happen eventually.
Title: Re: Fairfax 2018
Post by: Viking on January 11, 2018, 03:38:35 PM
Petec, no offense taken. Two people can look at the same situation and come to two very different conclusions; does not mean one is right and one is wrong. It often comes back to what ones objectives are and investing style.

Dalzel/cigarbutt, regarding the large amount of cash at the holding company, yes, it will be interesting to see what FFH does. Prem has clearly stated that he feels the shares are cheap and buybacks are likely. I wonder if they will wait and see if there is a bit of a hard market as we start 2018 and therefore an opportunity to grow the business organically. I think he has stated another large acquisition is not likely. I would like to see them start to get the share count down. You can see all the shares that have been added the past 10 years on the one page summary at the beginn8ng of the annual report. If I had to guess i think they will end up using the excess cash to reduce the share count; if this happens we should see a nice jump in the shares. This is another reason I bought shares recently (I got concerned they would not stay cheap). Shares also go ex dividend Jan 17 and this will net shareholders US$10 per share a week later.
Title: Re: Fairfax 2018
Post by: ABM on January 11, 2018, 05:17:44 PM
Petec, no offense taken. Two people can look at the same situation and come to two very different conclusions; does not mean one is right and one is wrong. It often comes back to what ones objectives are and investing style.

Dalzel/cigarbutt, regarding the large amount of cash at the holding company, yes, it will be interesting to see what FFH does. Prem has clearly stated that he feels the shares are cheap and buybacks are likely. I wonder if they will wait and see if there is a bit of a hard market as we start 2018 and therefore an opportunity to grow the business organically. I think he has stated another large acquisition is not likely. I would like to see them start to get the share count down. You can see all the shares that have been added the past 10 years on the one page summary at the beginn8ng of the annual report. If I had to guess i think they will end up using the excess cash to reduce the share count; if this happens we should see a nice jump in the shares. This is another reason I bought shares recently (I got concerned they would not stay cheap). Shares also go ex dividend Jan 17 and this will net shareholders US$10 per share a week later.

Viking your comments and obvious experience with FFH is very much appreciated.  Based on Prem's comments from the Q3 call, I am hoping to see a high level of repo activity once results are released, especially, given the asset sales have closed.  Im paraphrasing but he basically said differential between book value and IV is at the widest level in his 32 years at the company. Secondly, I am focused on Allied adverse reserve developments though Prem said it was a one-off in Q3 results.  Lastly, a firmer guide around the hurricane CAT losses and pricing outlook. 
Title: Re: Fairfax 2018
Post by: StubbleJumper on January 11, 2018, 06:18:06 PM
Viking and SJ - while everything you post is true, I take a slightly different approach with FFH. I decided a long time ago that a) I like the float-investment model; b) I trust Prem and his team and the culture they are building; and c) that they are smart people who will make more good decisions than bad over time. So I decided to hold the shares long term (unless they got to a silly valuation) and see what happened.

Maybe that's naïve - many would say so. But then again all investment managers go through good patches and rough ones, and if you can't stick the rough patches you seldom compound with them. So far I am very happy with the results, although I will admit that keeping the faith was easier in 2015/6 by the fact that I agreed with the hedges! Oops! where Prem and team beat me hands down is I wouldn't have taken them off when they did. Big oops, but then that's why I let them manage some of my money!

Anyway, that's why I don't really feel we have more info than a year ago. We have more precise data on the value of certain subs and investments, yes. But what creates the value is the people and the culture, which has proven itself over 30 years, and that hasn't changed in the last 12 months.

I accept that the ratio between the "surfaced" value per share and the share price has changed, but that only explains why people are more bullish on the shares. It does not explain why Fairfax has gone from hero to zero, from dumb to smart. I honestly think that anyone who has changed their mind on that in the last 12 months simply didn't know the history or isn't being rational. However as RG said, the tone has changed because different people are posting so it is a moot point.

I'm not trying to start a fight here, BTW, so I slightly regret my initial post.


Please do not regret in any way your initial post.  It was a worthwhile observation and has stimulated discussion.  That in itself is of considerable value.

You are right, of course, that FFH is ultimately a jockey-stock.  Either you have confidence in the jockey or you don't.  You've maintained your position because you have confidence in the jockey, and I've had various levels of investment in FFH and its subs since 1998, so that should tell you something about my view of management's capabilities.   That being said, we should not put Prem up on a pedestal.  In addition to the savvy investment decisions and the clever moves in 2003 and 2004 to keep the company alive, he sometimes does things that are plain old wacky or that are abusive of minority shareholders.  When too many of those wacky things are done over a short period, he loses long-time shareholders.

If you are curious about the sorts of things that might be viewed as wacky, here are a few:

-The repeated increases in capital dedicated to Blackberry (RIM) despite demonstrably poor returns was baffling.  His flirtation with purchasing the firm outright, despite FFH's dearth of expertise in the industry were bizarre.  His decision to accept a position on RIM's board of directors which effectively limited FFH's ability to divest the position was a strange thing to do.  And finally, the overall size of the Blackberry investment in the context of FFH's investment portfolio was ridiculous.  All of this occurred during a period when US banks were a no-brainer and BRK was demonstrably cheap.  There was large cap value in plain sight, and he chased a failing tech company with our capital.

-The sizing of the equity hedges and particularly the inflation hedges was baffling.  Without a doubt, I shared (and still share) FFH's concerns about current valuation levels and the risk that poses to FFH.  Hedging was a reasonable and thoughtful thing to do.  But what FFH actually did went far beyond hedging and entered into bald market speculation.  The entire equity portfolio was hedged, and if my memory serves me correctly, the inflation hedges had a notional value of ~70B or so, which far exceeds any reasonable level of protection that FFH might require.  And the flimsy argumentation for closing the hedges was beyond weak, even though closing the position was the correct thing to do.

-I like the idea of investing in Greece, but once again, position sizing is the key consideration.  There's a big difference between taking a flyer for $300m and dropping $1 billion on a high risk investment.  Again, this was done at a time when any value investor could see that JPM was cheap or BRK was cheap.


Anyway those are a few of the wacky things that were done using truly baffling position sizes.  So kudos for the good work in India, management of the actual insurance companies' underwriting has been outstanding, and the majority of the insurance acquisitions have worked out.  But, my take is that the wacky stuff has badly hurt investor confidence.  Here's to hoping for a more orthodox approach going forward.


SJ
Title: Re: Fairfax 2018
Post by: Dazel on January 11, 2018, 07:25:11 PM

Cigarbutt,

3. The hedges can be viewed many ways but it is the result that matters. They not only dropped like a rock the equity positions they were supposed to hedge were completely uncorelated and also dropped like rocks.

6. As I said it depends on what lines of business, where they are and whether or not they had claims last year

Petec
You are wise and you will do well holding Fairfax but you already know that...without the disasters last year the shares would be much higher and you would be right Prem et all would 0 to hero. I would argue that they are not even close yet. The share price is the same as it was almost 20 years ago albeit way overvalued then...there are clouds around Fairfax and its past depending who bought when.

The reason I am posting is that I think they have turned a corner and are in a position to perform greatly going forward. We will all debate the past but the future is all that matters now.
Title: Re: Fairfax 2018
Post by: petec on January 12, 2018, 06:55:21 AM
SJ

Agreed that we should not put Prem on a pedestal. He's made some huge errors. This will sound odd, but I don't mind them. It's part of investing his way, and what matters is the overall result, not the individual ones. I would not try to persuade others of that - anyone not comfortable with how they invest should not be a shareholder - but I am comfortable with it. I think the reason they didn't take the large cap value lying in plain sight is that they are deep value investors by instinct, and past c.2012 the US wasn't deep value - especially if you allowed for some margin mean-reversion. Anyway, I don't really care because I bought a lot of those cheap large caps myself. Fairfax was a diversifier and a hedge for me, as well as an excellent long term compounder at a reasonable price.

On position sizing: I think it's fair to point out that some big bets like BKIR & TCIL worked beautifully. Also, I don't really believe in criticising investments until they are finished. Let's see where Eurobank and Blackberry get sold. Prem et al are avowedly long term value monkeys. That means they don't try to maximise compounding by jumping on the best horse each year, but by buying dirt cheap and waiting. Given current valuations on the S&P and current trends at Eurobank and Blackerry, it's quite possible that these two look like great absolute and relative investments over their full holding periods, which probably won't end for a few years yet. Who knows, but I will assess them when its over.

On BBRY: Fairfax now has control over a wide range of businesses in which they have limited experience. Some (like Cara, TCIL, Quess) are huge. So, I don't find the idea of buying BBRY outright so odd, although I am glad they didn''t. Also, I think one of the key strengths of Fairfax is its ability to build businesses by attracting the right managers (a key cultural strength) and supporting them. I think (?) they were instrumental in getting John Chen to come to BBRY. They probably couldn't have done that without a board seat.

Agreed that the sizing/structuring of the equity hedges was an outright mistake - although as I have said before, I think we would all be more forgiving if the longs had outperformed. That way they'd have locked in their alpha but foregone beta, which would now look like a "mistake" but a more justifiable one. But I think you're wrong about the deflation swaps. The nominal exposure hit $110bn but that's a meaningless number. What matters is that they'd have made 1% of that number for every 1% CPI dropped below strike. Since strike was some way below current CPI, you'd have had to have had several % of deflation to make a big return on the outlay. I think they sized that one more or less right and it was a decent "heads I win, tails I don't lose too much" hedge against a tail risk. What damaged them was hedging the equities as well and then not performing on the equity longs.

Thanks for your comments. Even though I often see the other side of the argument, they are all valid and good for helping me keep Prem off that pedestal. As Dazel says, what matters is the future.
Title: Re: Fairfax 2018
Post by: Dazel on January 12, 2018, 07:23:24 AM


I believe that Prem and the equity side of Fairfax got caught in the proverbial trap of Sir John Templeton (prems mentor and a long  time Fairfax shareholder) and Warren Buffett. No one teaches you how to go from running a 10 million dollar business to a $10b company. Buffett missed Prem’s mistakes because of Charlie Munger who knew early that Ben Graham model would not scale into the future and during that transition and the tough 70’s markets Berkshire did not move a dollar for a ten year span. What Prem and his team did do greatly over this time is build very good businesses and their best purchases are home runs and forgotten. Orh, Nb, Zenith (take a look at their comps) and many other smaller insurers were steals and have been tremendous acquisitions and to me the back Bone of what is to come....it’s where the intrinsic value is hidden.

Petec,  I agree that Fairfax will not make these mistakes again and understand your thinking. Allied will turn out very well and they are morphing into a mini Berkshire...they have to. The old ways do not scale and they have been headed this way for awhile and it has not been noticed. I amrepeating myself...but I am a little giddy I did not think I would get an opportunity to partner with Fairfax again in a big way. Companies like this rarely trade a discount  like this especially in this type of market multiple.

It may be awhile but that will benefit us all the most...as buy backs are key.
Title: Re: Fairfax 2018
Post by: longinvestor on January 12, 2018, 08:02:52 AM


I believe that Prem and the equity side of Fairfax got caught in the proverbial trap of Sir John Templeton (prems mentor and a long  time Fairfax shareholder) and Warren Buffett. No one teaches you how to go from running a 10 million dollar business to a $10b company. Buffett missed Prem’s mistakes because of Charlie Munger who knew early that Ben Graham model would not scale into the future and during that transition and the tough 70’s markets Berkshire did not move a dollar for a ten year span. What Prem and his team did do greatly over this time is build very good businesses and their best purchases are home runs and forgotten. Orh, Nb, Zenith (take a look at their comps) and many other smaller insurers were steals and have been tremendous acquisitions and to me the back Bone of what is to come....it’s where the intrinsic value is hidden.

Petec,  I agree that Fairfax will not make these mistakes again and understand your thinking. Allied will turn out very well and they are morphing into a mini Berkshire...they have to. The old ways do not scale and they have been headed this way for awhile and it has not been noticed. I amrepeating myself...but I am a little giddy I did not think I would get an opportunity to partner with Fairfax again in a big way. Companies like this rarely trade a discount  like this especially in this type of market multiple.

It may be awhile but that will benefit us all the most...as buy backs are key.

Buffett and Munger were moving more than a dollar. See's, Geico and the newspaper deals...all happened during the 70's.
Title: Re: Fairfax 2018
Post by: cwericb on January 12, 2018, 08:07:20 AM
I am also one who has been very comfortable holding Fairfax for the past 10+ years, perhaps because I am a rank amature at investing.

Yes Prem has been widely criticized for his hedges,  just as he was for his Credit Default Swaps when he purchased them. As they say, hindsight is 20/20, some things work, some do not.

My investment in Fairfax with its hedges and deflation swaps acted as a hedge for me that allowed me to make other investments in the market with a certain amount of confidence that my FFH shares would help protect me if things went south. As a Canadian, Fairfax also tends to act as a hedge for the Canadian dollar. When the CDN dollar drops against the US dollar, FFH shares tend increase in value which is why FFH shares have performed better in Canada than in the US. According to the TMX chart comparing FFH to FRFHF, since 2013 FRFHF is up 40% while FFH is up 80%. Works for me.

I don’t know why it is expected that he has to be right every time. I certainly am not right on all my investments, but overall I seem to do okay, I don’t demand more of Fairfax.
Title: Re: Fairfax 2018
Post by: StubbleJumper on January 12, 2018, 08:32:32 AM
I don’t know why it is expected that he has to be right every time. I certainly am not right on all my investments, but overall I seem to do okay, I don’t demand more of Fairfax.


Nobody is right every time.  But the question is how to you manage risk, and how do you choose your position sizes?  There's a big difference between dropping $100m on something like Resolute and pumping $1.3B into Blackberry.  They are both risky investments with a considerable risk of a permanent loss of capital.  But, in the first case, if you get your ass handed to you, it might cost you $80m of capital, while in the second case, it might cost you $1B if you get your ass handed to you.  In both cases you were wrong if your ass was handed to you, but in the first case your position size was more appropriate in the broader context of your investment portfolio.  Bank of Ireland, which was an unambiguous success, was a position size of ~US$500m and that was already plenty large for the inherent risk of a permanent loss of capital.  Working from memory, the credit default swaps were a collective position of less than US$400m.  So, irrespective of your level of conviction about an investment, proper risk management requires appropriate position sizing.

Nobody is going to agree with every investment that FFH makes.  And nobody should expect 100% success from any investor.  But we should expect that the risks being taken are not reckless.


SJ
Title: Re: Fairfax 2018
Post by: cwericb on January 12, 2018, 09:49:56 AM
“Working from memory, the credit default swaps were a collective position of less than US$400m.”

Yes SJ, but consider that $400m (actually about $435m) represented a much more significant gamble in 2003 than $435m would be today given inflation and the size of Fairfax 15 years later.

And Prem has warned us that results would be "lumpy".

Title: Re: Fairfax 2018
Post by: StubbleJumper on January 12, 2018, 10:02:49 AM
“Working from memory, the credit default swaps were a collective position of less than US$400m.”

Yes SJ, but consider that $400m (actually about $435m) represented a much more significant gamble in 2003 than $435m would be today given inflation and the size of Fairfax 15 years later.

And Prem has warned us that results would be "lumpy".


Sure, that's absolutely true.  As your portfolio gets larger, your appropriate position size measured in dollars should get larger.  But was the ~$400m CDS in 2003 equivalent to ~$1.3B Blackberry position in 2015?  And would a ~$400m CDS position even remotely represent the same risk of a large permanent loss of capital as the complete acquisition of Blackberry?

Returns will be lumpy, and that's fine because it's the nature of the market.  You make your money when you buy, not when you sell.  But, lumpy returns and wacky position sizing (ie, poor risk management) are two different things.


SJ
Title: Re: Fairfax 2018
Post by: cwericb on January 12, 2018, 10:20:02 AM
Don’t necessarily disagree with you. But it will be interesting to watch BB over the next few years.

Prem has orchestrated some significant turn-arounds in the past, The Brick comes to mind when he put Gregson in control. Think Chen may well do the same with Blackberry, it is just taking a lot longer than anyone expected and it is a different company today than when Prem jumped in with both feet.
Title: Re: Fairfax 2018
Post by: Cigarbutt on January 12, 2018, 10:48:30 AM
I wonder if it is appropriate to compare Blackberry and The Brick.

Not an expert in the Blackberry businesses (old or new) but the turnaround relied on huge shifts including strategic, products, markets etc
So, I submit the jury is still out on this one.

I can say a few relevant words about The Brick as I followed closely and held units, warrants and debentures during the down and up phase. I suggest that Fairfax involvement made more sense then as there were very specific issues that had to be dealt with (liquidity squeeze, inventory shortages, lack of staff (sale) and slashed publicity spending) that led to a downward spiral that could be stopped by a cash infusion which Fairfax could provide. Obviously, credit has to be given to the new management including Mr. Gregson, but the key event was the financing done by FFH and the founder (Mr. Comrie).

In the future, I hope that they make more deals templated on liquidity issues and not on fundamental or existential issues.
Title: Re: Fairfax 2018
Post by: cwericb on January 12, 2018, 11:10:56 AM
Yes, they are quite different situations, I was referring more to the fact that Prem was able to put the right guy in to run The Brick and I believe he has probably put the right guy into run Blackberry with Chen. I too had shares in The Brick back then and one of my sons was running their flagship store in Calgary at the time. It was a quick rescue and turn around.

Bottom line is that I believe that Fairfax is a good investment - for me at least. Bought a few more Fairfax shares this week and started a position in Fairfax India as well.
Title: Re: Fairfax 2018
Post by: Dazel on January 12, 2018, 01:36:33 PM




Longinvestor,

It was not 1970-80....it was around 1966-76...
Rick Guerin Mungers partner famously asked Warren if the stock would go down anymore...to which he said “I don’t know”...Guerin sold his shares as Berkshire dropped 50% from its top. Geico was bankrupt and Buffett and Salmon bailed them out, the Buffalo news was a disaster in the late 70’s...See’s killed it...and there you have it. Buffett’s aha moment....pay up for great businesses. He said he would never have bought Coke without seeing see’s economics first hand.

Fairfax is at an aha moment. The past does not matter the company is primed for the next decade let’s hope they do as well as Berkshire did coming out of a dry spell. Prem’s strength is math...good businesses and big bets on them...they have just been used to picking up dollars for 50 cents. It’s mungers math that works for big insurance companies. And a smaller bets on the eurobank of the world.

Incidentally the Credit default swap portfolio was intitiated to hedge against the companies that Fairfax had reinsurance with in 2003. It expanded as the housing bubble grew....$400m was down 90% before it exploded higher. But the insurance was real and brilliant at the time in 2003..as it eased fear that Fairfax would collect its reinsurance receivable which was large relative to equity.
Title: Re: Fairfax 2018
Post by: Dazel on January 12, 2018, 01:38:50 PM


Brian Bradstreets idea.
Title: Re: Fairfax 2018
Post by: petec on January 12, 2018, 02:20:58 PM
Nobody is going to agree with every investment that FFH makes.  And nobody should expect 100% success from any investor.  But we should expect that the risks being taken are not reckless.

SJ

Reckless is too strong a word, I think. Blackberry, the equity hedges, the CPI hedges, Eurobank, and a few smaller ones all went about as badly as they could have done in the time period we are discussing. And book value was...flat (more or less). It's also worth remembering that Prem knew (even if we didn't) the value that was building at Lombard and First Capital. My view is that while Prem took big bets, they weren't reckless risks.

Also a point of detail: $500m of the $1.3bn the BBRY bet was in convertible bonds to a net cash company that had a decent chance of stabilising cash burn (and did). That changes the risk profile, obviously.
Title: Re: Fairfax 2018
Post by: chrispy on January 13, 2018, 06:03:01 AM
One way to think of this is, what does an investor get that bought in over the past 1-2 years? Very low equity prices in nearly all the major holdings and profitable insurance businesses
Title: Re: Fairfax 2018
Post by: Dazel on January 13, 2018, 09:27:51 AM

I think we have beat the proverbial Fairfax past to death here. November 2016 they changed course saved billions in hedge losses...took their profits in treasury bills before they tanked and made by far their biggest acquisition ever taking investments up to $40b and they added heavily to their India bet. They told us that the Trump victory would bring animal spirits back and that U.S growth would power global growth they were correct. Investment (capital) Gains in 2017 will be a record despite what people think. Many holders used Fairfax doomsday hedges as their own hedge as did I...that shareholder base has sold out taking the stock down to these levels.

The world economic system has found a floor...as deflation is no longer the dibilitating fear. Another couple of trillion came out of negative rates. Governments will not try to slow it down they need the growth to manage debts. The CPI hedges are there if it falls apart they have already been written down to negligible levels.

Fairfax new story will be one of growth as they will be able take advantage of rising rates while many large fixed income holders will experience serious losses...expect them to take equity positions that grow over time (Berkshire model) they are in the drivers seat so let’s see what the future holds.


Title: Re: Fairfax 2018
Post by: FFHWatcher on January 13, 2018, 12:35:43 PM
I was surprised (and encouraged) by Prem's comments after the election.  It sounded like and I think most would agree, that FFH was ready to play offense.  I don't know the exact numbers but it seems like FFH have added almost NO significant equity long positions to their portfolio's.  Portfolio is still mostly cash well over a year later.  What gives?  Valuation?
Title: Re: Fairfax 2018
Post by: chrispy on January 13, 2018, 12:49:14 PM
What are all of the Greek investments?
Title: Re: Fairfax 2018
Post by: petec on January 14, 2018, 12:25:40 AM
I was surprised (and encouraged) by Prem's comments after the election.  It sounded like and I think most would agree, that FFH was ready to play offense.  I don't know the exact numbers but it seems like FFH have added almost NO significant equity long positions to their portfolio's.  Portfolio is still mostly cash well over a year later.  What gives?  Valuation?

Basically yes. Prem was actually very clear that "offense" didn't mean they were suddenly bullish on the market. It just meant they were cutting their losses on the hedges and would wait in cash for great opportunities.

They have done quite a bit since, but more in the pref/warrant+convertible portfolio rather than equities.
Title: Re: Fairfax 2018
Post by: Dazel on January 14, 2018, 04:30:29 PM

Petec I disagree.

Prem said

I am bullish on global markets and growth especially in India and developing markets because the U.S growth is going to pick up and animal spirits will return.

-They made the biggest acquisition by far in their history completed in July..taking the investment portfolio to $40b

-They sold the majority of their long term bonds and said interest rates will rise...in other words we will wait to buy bonds

-They started Fairfax Africa

-they added to Fairfax India raised debt and bought more investments

They added another $250m in Greece

-had record investment returns for 2017 from two big sales

-started an Insurance company on their own in India

-invested about another billion in convertible preferred shares

They have been very busy they just are not buying U.S common stocks at 20x earnings....but have shown bullish moves on global growth which they have been right about so far.

To me again the bullishness has kept them away from the bond market which will move the needle more than anything else when they re enter....when others head for the exit....that’s not far away. The 43% of the portfolio in cash will be headed for bonds at the right price.

Title: Re: Fairfax 2018
Post by: dutchman on January 14, 2018, 05:02:52 PM
Near-term earnings will be well below the company’s long run earnings power, for sure.  I think this plays out over 5+ years though.  Good one for the patient, but who's patient? :)
Title: Re: Fairfax 2018
Post by: Dazel on January 14, 2018, 05:40:25 PM


I once again disagree. Dutchman.

Can you tell me how Markel got to a $1000 a share? What investment genius decisions did they make? They have very good insurance operations and a decent investment return on the investment portfolio.

New Fairfax is an operating company that do not need spectacular macro calls... they do not need a lot to go right to perform well. Will they have a great investment in the next 5 years that will standout and pop the shares probably...5% return and underwriting  profits will take pretax earnings to around $3b. That’s this year...not the next 5.

The math works.
Title: Re: Fairfax 2018
Post by: shalab on January 14, 2018, 06:00:11 PM
FRFHF still has CPI derivatives on which it is losing money. Furthermore, FRFHF is a family business in the mould of Indian business houses. If you look at Tata, the family has owned it since 1800's. SD has done some good analysis on how these are setup so the next generation will benefit.



I once again disagree. Dutchman.

Can you tell me how Markel got to a $1000 a share? What investment genius decisions did they make? They have very good insurance operations and a decent investment return on the investment portfolio.

New Fairfax is an operating company that do not need spectacular macro calls... they do not need a lot to go right to perform well. Will they have a great investment in the next 5 years that will standout and pop the shares probably...5% return and underwriting  profits will take pretax earnings to around $3b. That’s this year...not the next 5.

The math works.
Title: Re: Fairfax 2018
Post by: Dazel on January 14, 2018, 06:40:42 PM


Shaleb,

Tell the board what the mark to market value of the he CPI derivatives are carried in the book value is please and how much possible downside there is to a value of zero please.

Title: Re: Fairfax 2018
Post by: Dazel on January 14, 2018, 06:54:25 PM

Page 14 of the third quarter report Shalab.
The hit has been taken as for that Tata family? Really?
Title: Re: Fairfax 2018
Post by: Dazel on January 14, 2018, 07:02:19 PM


Waiting Shalab let’s us know what that downside is on the CPI derivatives and please explain your bizarre Tata reference.
Title: Re: Fairfax 2018
Post by: dutchman on January 14, 2018, 07:10:25 PM
i think he's saying it deserves a big discount because it will be handed over to watsa's son who may not be the best steward?

thanks for your posts Dazel, I'm learning a lot.
Title: Re: Fairfax 2018
Post by: shalab on January 14, 2018, 07:39:10 PM
In Indian business houses, control is passed from one generation to the next - shareholder is a lower priority - that is all.

CPI derivatives - let us see how things look like in Q4.

I still own some FRFHF but the number is significantly lower than it was a few years back. It has been a good decision. I haven't bought back yet.

i think he's saying it deserves a big discount because it will be handed over to watsa's son who may not be the best steward?

thanks for your posts Dazel, I'm learning a lot.
Title: Re: Fairfax 2018
Post by: Dazel on January 14, 2018, 07:47:20 PM
http://www.fairfax.ca/news/press-releases/press-release-details/2015/Fairfax-Announces-Modifications-to-Multiple-Voting-Share-Proposal-and-Postponement-of-Special-Meeting--of-Shareholders-to-August-24-2015/default.aspx

 .2 from the amendment

If Prem is no longer the CEO or the Chairman of Fairfax there has to be a vote among “minority shareholders” to approve the amendments for the multiple voting shares to remain. He has signed on to remain in his positions until 2025 and kept his salary frozen at $600,000 which he has done since 2000.

So why would you worry about his son stewarding the ship? He would have to win a minority vote to have the controlling vote if Prem were to leave for “any” reason.

Shalab does that sound like an Indian business house from 1800’s?
Title: Re: Fairfax 2018
Post by: Dazel on January 14, 2018, 07:49:36 PM



$59m fair value on CPI contracts. They have written off almost $600m.
Title: Re: Fairfax 2018
Post by: petec on January 15, 2018, 12:46:37 AM

Petec I disagree.

Prem said

I am bullish on global markets and growth especially in India and developing markets because the U.S growth is going to pick up and animal spirits will return.

-They made the biggest acquisition by far in their history completed in July..taking the investment portfolio to $40b

-They sold the majority of their long term bonds and said interest rates will rise...in other words we will wait to buy bonds

-They started Fairfax Africa

-they added to Fairfax India raised debt and bought more investments

They added another $250m in Greece

-had record investment returns for 2017 from two big sales

-started an Insurance company on their own in India

-invested about another billion in convertible preferred shares

They have been very busy they just are not buying U.S common stocks at 20x earnings....but have shown bullish moves on global growth which they have been right about so far.

To me again the bullishness has kept them away from the bond market which will move the needle more than anything else when they re enter....when others head for the exit....that’s not far away. The 43% of the portfolio in cash will be headed for bonds at the right price.

Apologies - I wasn't very clear. My comment related to the US stock market - the removal of the hedges (which were predominantly US) and the "playing offense" comments did not mean he was bullish on the US market. This was made clear.

You are right about the rest although much of it happened before the hedges came off - the buildup in India, the move to short duration. The sales of Lombard and First aren't really relevant to FFWatcher's question that I was trying to answer.

What is relevant, and I hadn't thought through fully, is your point that much of the cash is waiting to be reinvested in bonds not equities. That's a big part of why they have so much cash despite "playing offense".
Title: Re: Fairfax 2018
Post by: petec on January 15, 2018, 12:57:30 AM
http://www.fairfax.ca/news/press-releases/press-release-details/2015/Fairfax-Announces-Modifications-to-Multiple-Voting-Share-Proposal-and-Postponement-of-Special-Meeting--of-Shareholders-to-August-24-2015/default.aspx

 .2 from the amendment

If Prem is no longer the CEO or the Chairman of Fairfax there has to be a vote among “minority shareholders” to approve the amendments for the multiple voting shares to remain. He has signed on to remain in his positions until 2025 and kept his salary frozen at $600,000 which he has done since 2000.

So why would you worry about his son stewarding the ship? He would have to win a minority vote to have the controlling vote if Prem were to leave for “any” reason.

Shalab does that sound like an Indian business house from 1800’s?

I'm not sure you've read that right, Dazel. The way I read it, the minorities get a vote on whether the multiple voting shares continue to be protected from dilution by share issuances after the vote. They don't get to vote on whether the multiple voting shares should continue to have their existing number of votes. And they don't get to vote for 5 years.

If my reading is correct then Prem could hand over to his son, who could issue shares at will for 5 years and then stop, and still have 41.8% of the votes forever.

Which isn't to say that he would do that, but we have to have our eyes open. I think the biggest safeguard against that is Prem's knowledge that both insurance and investment are fundamentally people businesses. If you don't protect the culture the people will leave and all the value you have created will go. I doubt that's Prem's long term plan. We also have a fair idea who Prem's successor is at the top and it's not his son.
Title: Re: Fairfax 2018
Post by: Dazel on January 15, 2018, 04:18:50 AM

Petec, your point  is well taken on the amendment...we know the shares have already been diluted from the Allied acquisition so I am not sure how it works exactly. But I most certainly do not think it is the issue that has been brought up. I see a shareholder group that was very dissatisfied with Prem’s performance in 2015-2016 and they saw it as an undeserved power grab. They of course are entiltled to this opinion and many voted with their feet.
They sold most of their shares...the corner of Berkshire Fairfax dinner is likely over...these are all signs of capitulation.The fact is Fairfax is second behind Berkshire for their treatment of shareholders over the last 30 years. To think that Prem set up a family coup like the Tata of the 1800’s is laughable. However, it is important to note there is great disappointment in Fairfax being wrong for awhile.

To be fair I am pretty sure that I have stressed how bad the hedges were and what a disaster they were to performance when I said they may be the worst hedges I have ever seen! This rear view look is why we are trading where we are and actually why I am posting.

When other Fairfax threads broached the topic of hatred of Fairfax they were real. Biggest bull market in history and Fairfax not only did not profit they lost likely $6b in hedge losses and equities fell apart!!!? Shareholders  “deserve” to be pissed. But be pissed for the right reason. Performance sucked!

So the shares are in show me mode.... and rightfully so...my point is only to stop thinking about the rear view mirrror and look at what carrried Fairfax through the hedge losses. When they get the investing side right and I think they will....all will be sorry they held a grudge!

Petec we understand you are stronger than most and will do better in the long run...you don’t know when Fairfax will have a 50% run in share price. Dutchman, Idont think it will be 5 years! But your point is well taken speculation has taken over and 5 years is an eternity to most!

Since everyone is in speculation mode...I will speculate that Longleaf will keep adding here and they will double their money in Fairfax in a couple of years.
Title: Re: Fairfax 2018
Post by: petec on January 15, 2018, 04:29:39 AM
Agreed Dazel - and FWIW, my reason for continuing to debate the history is because it gives an insight into the culture and decision-making/learning process, rather than because I think recent history is a guide to the near future!
Title: Re: Fairfax 2018
Post by: Dazel on January 15, 2018, 07:51:30 AM


Fairfax has paid around $100 a share out and dividends as well for long term holders these become significant portion of their returns when growth starts to compound again. It would add around 20% to returns over the last decade. While most do not care...big smart money does.
Title: Re: Fairfax 2018
Post by: dutchman on January 15, 2018, 10:23:59 AM
has anyone examined Allied and Brit recently.  Are you satisfied there wont be too many big surprises?
Title: Re: Fairfax 2018
Post by: StubbleJumper on January 15, 2018, 10:30:21 AM
has anyone examined Allied and Brit recently.  Are you satisfied there wont be too many big surprises?


By surprises, do you mean catastrophe losses, or do you mean adverse development?  If it's the latter, it's pretty tough to know in advance.  If the previous management was not disciplined in its underwriting, it can take a few years to find all of the skeletons in the closet.


SJ
Title: Re: Fairfax 2018
Post by: Dazel on January 16, 2018, 06:31:42 AM

For all the bull market enthusiasts...Blackberry may be on the cusp of joining the frenzy. I would not hold a big position directly at these levels but happy to have Fairfax possibly make billions on the frenzy.

https://www.reuters.com/article/us-blackberry-software/blackberry-launches-cybersecurity-software-for-self-driving-cars-idUSKBN1F42LX

The article missed the Nvidia partnership. Nvidia was the hottest stock in the tech sector last year...stay tuned.
Title: Re: Fairfax 2018
Post by: StubbleJumper on January 17, 2018, 07:22:34 PM
http://www.fairfax.ca/news/press-releases/press-release-details/2015/Fairfax-Announces-Modifications-to-Multiple-Voting-Share-Proposal-and-Postponement-of-Special-Meeting--of-Shareholders-to-August-24-2015/default.aspx

 .2 from the amendment

If Prem is no longer the CEO or the Chairman of Fairfax there has to be a vote among “minority shareholders” to approve the amendments for the multiple voting shares to remain. He has signed on to remain in his positions until 2025 and kept his salary frozen at $600,000 which he has done since 2000.

So why would you worry about his son stewarding the ship? He would have to win a minority vote to have the controlling vote if Prem were to leave for “any” reason.

Shalab does that sound like an Indian business house from 1800’s?


What do you make of the contract between FFH and the Lissom investment management company that employs Ben Watsa?  Looks like Ben is managing $50m of FFH's assets through that company.  I wonder how much FFH is paying in investments fees and why that $50m isn't just taken care of by Hamblin Watsa like the rest of the portfolio?  What does Ben make out of this?  Is this a 1 and 20 compensation scheme or something like that?

Fifteen years ago, Sanjeev would have given his left nut to have a contract to invest $50m.


SJ
Title: Re: Fairfax 2018
Post by: Dazel on January 17, 2018, 07:42:51 PM


Maybe Ben Watsa is like Chris Davis and it runs in the family and he has $50m of financials! I see Chou funds kicked ass in the last couple months he has $500m of Fairfax money I think....but his performance has been dreadful too! Maybe Ben is a the smartest of the bunch....if he isn’t and his performance is sub par he will be replaced...not sure how he could not beat Prem and his team over their dry spell! Lol.

My money is on Bradstreet...always has been...he has consistently outperformed his bench marks by a wide and incredible margin.

The fact of the matter is Prem will take heat about structure, Ben,  his recent performance until he rights the ship. That is the way it should be.....
Title: Re: Fairfax 2018
Post by: Txvestor on January 17, 2018, 07:46:18 PM
https://www.prnewswire.com/news-releases/seaspan-enters-into-definitive-agreements-for-250-million-unsecured-550-debenture-and-warrant-investment-with-fairfax-financial-holdings-limited-669830003.html

Is this the same David Sokol of Berkshire Hathaway fame, that was unceremoniously booted out soon after the Lubrizol acquisition for front running his money while aware of Berkshire's plans to takeover?
A little hard to stomach after Watsa's blind faith in Tom Ward that lost Fairfax hundreds of millions of dollars. If you listen to the likes of Walter Schloss one of the attributes of Warren Buffett they are amazed by is his uncanny ability to judge character, and as close as Sokol was to the top, I doubt he was acting with less than full  knowledge.
Certainly a concern for me. Any thoughts?
Title: Re: Fairfax 2018
Post by: petec on January 18, 2018, 02:31:19 AM
https://www.prnewswire.com/news-releases/seaspan-enters-into-definitive-agreements-for-250-million-unsecured-550-debenture-and-warrant-investment-with-fairfax-financial-holdings-limited-669830003.html

Is this the same David Sokol of Berkshire Hathaway fame, that was unceremoniously booted out soon after the Lubrizol acquisition for front running his money while aware of Berkshire's plans to takeover?
A little hard to stomach after Watsa's blind faith in Tom Ward that lost Fairfax hundreds of millions of dollars. If you listen to the likes of Walter Schloss one of the attributes of Warren Buffett they are amazed by is his uncanny ability to judge character, and as close as Sokol was to the top, I doubt he was acting with less than full  knowledge.
Certainly a concern for me. Any thoughts?

It is. They also have a joint investment with him in Davos Brands.

Buffett always praised him as an exceptional executive. He made - so far as we know - one lapse of judgement. He has either learned his lesson or has not. Fairfax is investing alongside him in marketable securities. That's very different to promoting him CEO of a subsidiary or even the whole company, which people thought might happen at BRK. Am I totally comfortable? No. Do I see it as a massive risk for Fairfax? No.

Buffett clearly made a mistake in his judgement of Sokol's character. What we don't know is whether he made it when he praised him or when he fired him.
Title: Re: Fairfax 2018
Post by: petec on January 18, 2018, 02:34:46 AM

For all the bull market enthusiasts...Blackberry may be on the cusp of joining the frenzy. I would not hold a big position directly at these levels but happy to have Fairfax possibly make billions on the frenzy.

https://www.reuters.com/article/us-blackberry-software/blackberry-launches-cybersecurity-software-for-self-driving-cars-idUSKBN1F42LX

The article missed the Nvidia partnership. Nvidia was the hottest stock in the tech sector last year...stay tuned.

I think Blackberry has already joined the frenzy!

I was also amazed to see that Grivalia is virtually debt free. Enormous opportunity there as the Greek banks ramp their efforts to auction mortgage NPLs to meet their 2018/9 targets. And FFH could win on both sides of that deal - Grivalia and Eurobank, which still trades at 0.33x tbv despite having been profitable since 2016 (I have not done a deep dive).
Title: Re: Fairfax 2018
Post by: Dazel on January 18, 2018, 05:17:35 AM


Also of note I am pretty sure that Bradstreet has made money in Greek bonds...however, I am not sure how much he held into last years rally. Greek debt is the best performing in the world and now yields approx 3.5%....these were generating above 10% yields for a longtime.

Of note the U.S 10 year is trading above 2.60% yield at 2.613%. Last years high was 2.63% and as someone else quoted Gundlach (the bond king), he says if we breach 2.63% rates will skyrocket up.

This thesis would jive with the real “bond king” Brian Bradstreet’s strategy.
Title: Re: Fairfax 2018
Post by: Dazel on January 18, 2018, 05:27:59 AM


The old bond king Bill Gross says the bond bear market is in full swing...this is huge for Fairfax as they hold over 43% (after the sale of first capital) in cash...others bond portfolio will get hit with big losses. Fairfax will avoid the losses and be able to deploy at higher rates. To me this will be the story of 2018...Fairfax hold several commodity related investments as well which have and will continue do well in a rising inflationary environment...Resolute, Altius,Apr energy,  Seaspan, Fairfax Africa.


Title: Re: Fairfax 2018
Post by: Dazel on January 18, 2018, 05:47:44 AM

To add to the further posts Prem has publically stated that Fairfax believes that rates will rise with global growth...they are right for now let’s see how it plays out...to me defence on bonds which is the greatest portion of their investment allocation and always has been to a point where Bradstreet pulls the trigger at higher rates.
Equity holdings are emerging markets skewed $5b in India, $2b in Greece...inflation protected in the commodity related ownership I mentioned in my previous post...boat loads of cash...rising insurance premiums.

It’s a good spot to be....the blind bond buyers of the last several years will learn too late that they swimming naked.

For those that think Fairfax is lost...Gundlach is advocating commodities and calling for higher rates...Prem and his team were early as per usual but they are positioned for this theme. If it continues to play out the share price will be much higher before the public can figure it out. Unlike everyone else I would like to see this strategy success develop slowly so we get rid of a lot of shares through buy backs at these levels.
Title: Re: Fairfax 2018
Post by: StubbleJumper on January 18, 2018, 06:08:09 AM


The old bond king Bill Gross says the bond bear market is in full swing...this is huge for Fairfax as they hold over 43% (after the sale of first capital) in cash...others bond portfolio will get hit with big losses. Fairfax will avoid the losses and be able to deploy at higher rates. To me this will be the story of 2018...Fairfax hold several commodity related investments as well which have and will continue do well in a rising inflationary environment...Resolute, Altius,Apr energy,  Seaspan, Fairfax Africa.


I'm not quite ready to celebrate on this front.  What do you make of the sensitivity analysis in the Q3 report that suggests that FFH's duration has increased?  I would presume that this is mostly due to the legacy bond portfolio at Brit?  Do you figure they've go that cleaned up yet?


SJ
Title: Re: Fairfax 2018
Post by: StubbleJumper on January 18, 2018, 06:17:43 AM

For all the bull market enthusiasts...Blackberry may be on the cusp of joining the frenzy. I would not hold a big position directly at these levels but happy to have Fairfax possibly make billions on the frenzy.

https://www.reuters.com/article/us-blackberry-software/blackberry-launches-cybersecurity-software-for-self-driving-cars-idUSKBN1F42LX

The article missed the Nvidia partnership. Nvidia was the hottest stock in the tech sector last year...stay tuned.

I think Blackberry has already joined the frenzy!




Yes, it is heartening to see the Blackberry position in the black.  What do you envision as FFH's exit-strategy from this large position?  Presumably at some point in the future, FFH will want to exercise the conversion privileges on the debt that it holds because the shares have risen.  So, with Prem on Blackberry's board of directors, when the BlackBerry investment hits intrinsic value, how does FFH divest its position and re-deploy our capital into the next excellent opportunity?

Clearly this one is not like the large positions of yesteryear that FFH had in WFC, JNK and Kraft.  Exiting those positions was pretty straightforward because $300m or $500m of additional volume for those mega-caps can be absorbed pretty easily over a relatively small number of trading sessions...


SJ
Title: Re: Fairfax 2018
Post by: Dazel on January 18, 2018, 06:35:00 AM


SJ,

No need for excitement yet...I am always early as well! I will wait for the annual to comment on the duration...It depends on what was held at the longer end of the curve...Allied bonds I think you meant...Brit should be gone.

I will post the best example of what I have ever seen by a value investor holding a tech stock during the last bubble....this is not a worry at this point...all of Blackberry would like be sold in pieces...radar to Verizon, patents to a specialty company that is expert in this field, QNX to anyone(Nvidia), lots of cash for easy spin off...if they wanted to realize the value they would get a least $30  tomorrow.

If the market starts to appreciate this and then some there other ways to synthetically sell it.
Title: Re: Fairfax 2018
Post by: StubbleJumper on January 18, 2018, 06:57:55 AM


SJ,

No need for excitement yet...I am always early as well! I will wait for the annual to comment on the duration...It depends on what was held at the longer end of the curve...Allied bonds I think you meant...Brit should be gone.

I will post the best example of what I have ever seen by a value investor holding a tech stock during the last bubble....this is not a worry at this point...all of Blackberry would like be sold in pieces...radar to Verizon, patents to a specialty company that is expert in this field, QNX to anyone(Nvidia), lots of cash for easy spin off...if they wanted to realize the value they would get a least $30  tomorrow.

If the market starts to appreciate this and then some there other ways to synthetically sell it.


No real need to wait for the annual to comment on duration.  The basic direction is right there on page 25 of the Q3.  Based on a Q3 2017 bond port of $11.9b, a 100 bp parallel shift upward in the yield curve would whack earnings by $229.2m.  Based on a Q3 2016 bond port of $10.2B, the same 100 bp parallel shift upward would have whacked earnings by $148.2m.  So, given that the bond port has increased by 16 or 17 percent but the earnings impact has increased by ~50%, can one arrive at any other conclusion than an increase in average duration?

So, has the duration increase in the bond port been undertaken through active management, or is it legacy from Allied as you suggested?

I won't post one of the most disastrous examples of value investors counting on a "sum of the pieces" return.  It's called Sears Holdings.  The sum of the pieces analysis was probably correct, but execution can be a bitch.


SJ
Title: Re: Fairfax 2018
Post by: Dazel on January 18, 2018, 07:09:04 AM
Onex synthetically sold the majority of their Celestica holding at the highs in the tech bubble.

https://www.theglobeandmail.com/report-on-business/in-its-mind-market-uncouples-onex-shares-from-celesticas/article4153011/

http://www.marketwired.com/press-release/onex-settles-its-celestica-forward-sale-agreements-tsx-ocx.sv-542002.htm

Altius did the same thing with their sale of their Aurora shares at the top of the uranium bubble frenzy.

http://www.marketwired.com/press-release/altius-minerals-corporation-tsx-als-reports-third-quarter-net-earnings-316-million-tsx-als-958233.htm
Title: Re: Fairfax 2018
Post by: Dazel on January 18, 2018, 07:15:32 AM


Ahh SD,

Welcome.

How was your sum of the parts broken down on Bitcoin? Nice speculation congrats hope you sold.

Sears has operating losses of what $15 $20 billion? Pretty clear where the value went! Blackberry is cash flow positive...

What if the long term bonds were in Greek debt? Than it’s a home run! It matters in what.

Indian business houses really? They using block Chain? Lol.
Title: Re: Fairfax 2018
Post by: StubbleJumper on January 18, 2018, 07:15:54 AM
Onex synthetically sold the majority of their Celestica holding at the highs in the tech bubble.

https://www.theglobeandmail.com/report-on-business/in-its-mind-market-uncouples-onex-shares-from-celesticas/article4153011/

http://www.marketwired.com/press-release/onex-settles-its-celestica-forward-sale-agreements-tsx-ocx.sv-542002.htm

Altius did the same thing with their sale of their Aurora shares at the top of the uranium bubble frenzy.

http://www.marketwired.com/press-release/altius-minerals-corporation-tsx-als-reports-third-quarter-net-earnings-316-million-tsx-als-958233.htm


Were those synthetic sales made by a Director of the company who is obliged by SEC regulations to report all purchases and sales?
Title: Re: Fairfax 2018
Post by: Dazel on January 18, 2018, 07:25:54 AM

Obviuosly. Gerry Schwartz and Brian Dalton are not in jail.
Last time I checked they are iconic Canadian entrepreneurs.
Title: Re: Fairfax 2018
Post by: Dazel on January 18, 2018, 07:28:15 AM


Fairfax is not selling Blackberry. They will likely make a couple billion by th time they are done it is already one of the great turnaround stories. John Chen is a superstar....

SD you think they issue a new coin?
Title: Re: Fairfax 2018
Post by: StubbleJumper on January 18, 2018, 07:30:57 AM

Obviuosly. Gerry Schwartz and Brian Dalton are not in jail.
Last time I checked they are iconic Canadian entrepreneurs.


So, just to be clear, Gerry Schwartz of Onyx was sitting on Celestica's board of directors and engineered a synthetic sale and reported it to the SEC as an insider transaction for public dissemination?
Title: Re: Fairfax 2018
Post by: Dazel on January 18, 2018, 07:38:16 AM

SJ I don’t care...check Onex fiiings I don’t think their lawyers are stupid do you?
Title: Re: Fairfax 2018
Post by: Dazel on January 18, 2018, 07:41:47 AM

To SD’s point of The bond portfolio getting “whacked” for $220m on 100 basis point parallel move in yields.

What kind of losses would occur on $100 trillion? Whacked?! Yes.

http://www.scmp.com/business/companies/article/2104277/its-anybody-guess-which-way-us100-trillion-bond-market-will-go
Title: Re: Fairfax 2018
Post by: StubbleJumper on January 18, 2018, 07:50:12 AM

SJ I don’t care...check Onex fiiings I don’t think their lawyers are stupid do you?


It's not about whether Onyx's general counsel is stupid.  It's about FFH having dropped $1.3b into an investment which is not easily exited, in part because Prem sought a position on the board which requires that he publicly report purchases and sales of BB.  If he were not a board member, then it would be an easy thing to sell the BB position over a period of a couple of months, ignoring any price pressure that this might create.

The BB position is ~$50/sh.  I view this capital as somewhat encumbered due to Prem's board membership.  You seem to hold the view that it is not encumbered and have given the example of Onyx using a synthetic disposal approach to support that view.  Certainly there is more than one way to dispose of a large investment, but I'm struggling to think of other examples of Directors selling a $1b+ position, which is why I asked whether Gerry Schwartz was actually a Celestica board member (in the same way Prem is a member of BB's board of directors).  It's not about lawyers being smart or stupid.

If anybody has a really great exit-hypothesis for the BB investment, I'd love to hear it.


SJ
Title: Re: Fairfax 2018
Post by: Dazel on January 18, 2018, 07:57:45 AM
U.S Treasury moves year over year
2-year 83 basis points
10year 18 bp
30 year -13

In Sd’s number if Bradstreet went long 30 year he has made money....in price and got a high yield...2 to 5 year debt has got “whacked” globally.

Greece 10 year
-361 bp

The answer from me is I don’t know. Will know more after the annual.
Title: Re: Fairfax 2018
Post by: StubbleJumper on January 18, 2018, 08:03:06 AM

To SD’s point of The bond portfolio getting “whacked” for $220m on 100 basis point parallel move in yields.

What kind of losses would occur on $100 trillion? Whacked?! Yes.

http://www.scmp.com/business/companies/article/2104277/its-anybody-guess-which-way-us100-trillion-bond-market-will-go


To be clear, the issue is not whether a fixed income portfolio gets whacked when rates increase; that's a clear duration management question and it's a fact of life for all of us.  My only purpose for pointing out that FFH's duration appears as if it may have increased is that we should be circumspect about cheering for rate increases until FFH has finished dropping its duration.  Hence my question about whether you figure that they've got the Brit Allied portfolio clean up yet.

Otherwise, I tend to agree with your view of the FI port.  FFH seems to have gone to cash and short term, which is what you'd like to see if you anticipate an increase in interest rates.


SJ
Title: Re: Fairfax 2018
Post by: Dazel on January 18, 2018, 08:04:34 AM

SJ they are not exiting....if they are worried they will hedge the bet. It is 3 % of the investment portfolio.
At $30 I will worry about this

They would be there if they joined Kodak and issued a coin maybe go up 5 times like them!!!! The crypto crowd should start a thread on it!!!! let’s go!

If things get stupid( the stock takes off) and they may...I would join your concern.
Title: Re: Fairfax 2018
Post by: Dazel on January 18, 2018, 08:12:51 AM


Thanks SJ I understand your concern greatly!
I think i have explained it as much as I can until I see the annual report.
Title: Re: Fairfax 2018
Post by: Dazel on January 18, 2018, 04:22:52 PM

I had a lot going on today...just reread my posts....in aback and forth between many different things I made the mistake of thinking one of the posts was SD’s (an absolute gem highly intelligent and great for this board!)... I apologize for the misrepresentations in Responseto both SJ and SD...not for the response itself.

I think I subconsciously would have really liked a head to head with SD on the Indian business houses and discuss the value of a bitcoin....civilization, global warming...Second thought....not really.

Cheers,

Dazel

Title: Re: Fairfax 2018
Post by: John Hjorth on January 18, 2018, 05:16:39 PM
At least for my part, you're both excused and forgiven, Dazel.

I speculate that covers all CoBF fellow board members reading your posts.

I got a bit confused during the day about it, though. Absolutely no harm done.

Thank you for sharing your thoughts on Fairfax here on CoBF. Please keep your posts coming. At least I learn a lot from them, I have a feeling of other CoBF board members doing the same thing.

- - - o 0 o - - -

For my part, now back to keeping my mouth shut on Fairfax & reading on CoBF & learning about Fairfax.
Title: Re: Fairfax 2018
Post by: Dazel on January 18, 2018, 05:46:04 PM
https://www.cnbc.com/quotes/?symbol=US10Y

10 year U.S treasury has gone through 2.62% at 2.637%...if this is the trigger that spooks the $100t bond market its the highest rate since 2014...the 2 year going through 2% is the highest since 2008..we will see some fireworks...nice to have about $20 billion in cash.
Title: Re: Fairfax 2018
Post by: ValueMaven on January 19, 2018, 03:09:02 AM
You now have much improved underwriting at FFH from Allied...who knows how that transitions in 2018, but Allied was such a SMART acquisition for FFH honestly...I'll be reinvesting my dividends back into the parent (like I always do)....So what you want, but the future is BRIGHT.  For those of you who think Prem has lost his way...lets not forget him covering all of those hedges etc, when Trump was elected.  I agree, it was a mistake to hedge the book for so long, esp with those deflation swaps (I was not a fan of those at all)...Cheers, here is to a much brighter future at FFH.

PS: I might really try and tackle a detailed SOP valuation for FFH in 2018...if/when I do, I will of course post it here..

Sincerely,
VM
Title: Re: Fairfax 2018
Post by: Cigarbutt on January 19, 2018, 05:22:53 AM
One feature that I have followed and that may have implications in the opportunistic "future" of FFH is the growing presence of alternative capital, especially in the reinsurance market.

Last year was unusual in terms of the size and frequency of major catastrophes. Despite the losses in several catastrophe bonds, there seems (anecdotal and some data) to be an abundance of capital (often from the same sponsors) who continue to provide "replacement" capital.

This appears to be a slight positive for primary insurers as reinsurance rates are "kept" lower but some say alternative capital is looking into the territory of primary carriers as well.

I find that the capital inflows provided by the insurance-linked securities market has been unusually strong in the last few years. I suspect that this may be a major enhancer of the underwriting cycle. It must be frustrating for reinsurers to have competitors who can provide capital almost out of thin air in softer environments. Even if this may prolong the softness of the markets, I submit that, in due course, it may also contribute (disappearing capital) to a harder market in a more difficult environment.

From my limited perspective, I would like to see net premiums written by the reinsurance segments of FFH to remain stable or even shrink in this environment.

www.artemis.bm/deal_directory/cat_bonds_ils_issued_outstanding.html

What is a "SOP" valuation?

Title: Re: Fairfax 2018
Post by: Crip1 on January 19, 2018, 06:10:55 AM
"SOP" - Pretty sure that's "Sum of Parts".




-Crip
Title: Re: Fairfax 2018
Post by: Dazel on January 19, 2018, 06:14:23 AM




Cigar butt you are correct...you know what takes care of the excess capital?
Higher interest rates...the world has not only been reaching for yield they have climbed Everest...rising rates will squeeze liquidity and the excess capital will disappear. So it’s not just Bradstreet kicking th bond worlds ass he is the best in the world at accessing credit. (CDs portfolio hit every financial that was exposed and then made I killing on the right Muni’s)....

One of the consequence of where we are for those that are paying attention is that for debtors it’s a great time to bankrupt a company. Why? The realization of the remaining assets is high so debt holders will get higher payouts in liquidation then letting a company dig a debt hole into the future they will never get out of. This is a consequence of risng rates and liquidity squeezing....banks don’t want to lose when they see the credit cycle tightening....it will slowly (or quickly) have consequences. For almost a decade banks have not foreclosed because it was worth it to float the zombies with cheap money....that cycle may have changed...with Carillion...Steinhoff was mostly a scam pyramid...(Canadian Pot stock aren’t?!!)

This what Fairfax does best....restructures...taking first creditor position an environment of restructure and growth would be nirvana for Fairfax..many did not comment on the Blackberry move to debtor but it had very little downside nor did Resolute out of bankruptcy. This is early days of course....does not take much for Bankers to get spooked...do you not think they are checking their loan books after gettting burned? Unless they are in Toronto...and smoking the wacky tobacco not sure WTF Canadians are doing...gambling on houses, gambling on Bitcoin, gambling on Pot stocks...all with debt.
The world will continue forward and at a good clip but higher rates will bring opportunity and some destruction.

https://www.bloomberg.com/news/articles/2018-01-17/u-s-banks-have-lost-more-than-1-billion-on-steinhoff-loans

https://www.bloomberg.com/news/articles/2018-01-15/carillion-banks-lead-losers-as-2-2-billion-debts-crush-builder



Title: Re: Fairfax 2018
Post by: petec on January 22, 2018, 12:30:24 AM
A couple of thoughts on various topics that have come up:

1/ On the corporate governance thing. It reassures me that a) Ben Watsa does not work at Fairfax, which suggests Prem wants to avoid being seen as nepotistic; b) there is a known likely successor in running the business. But I would like greater clarity on what happens to Prem's shares and votes when he dies.

2/ On realising Blackberry...the most obvious option is to sell the business - even at 2x of 3x up from here it's not a big ticket in the grand scheme of things. The second option is to engineer a block sale, probably at a slight discount. Fairfax will have c.16% after conversion. They can find a home for that in endowments and pension funds if BBRY is once again seen as a success and is paying a dividend out of recurring RADAR and QNX revenues. Failing that, they can go to market with the block. Bottom line: this isn't the first time that a company has taken both a big stake and a directorship in a turnaround. It happens in PE and activist investing all the time and there are well-trodden exit pathways.

3/ The alternative capital in the industry a) goes away with higher rates as Dazel says, and b) needs underwriting which you can charge for. Lancashire have a great model for taking advantage of it. Fairfax could do the same - but to the extent that they do, they lose float. .
Title: Re: Fairfax 2018
Post by: Dazel on January 22, 2018, 02:42:24 AM


We ere at 2.67% this morning on the 10 year treasury....after a government shut down. Things are quiet for these levels...

Gundlach is watching JNK....says that it has remained under its 200 day average every day but one since Nov 1. Junk bonds are the canary in the coal mine...It is possible we get a spike in rates in the scenario we are in....that is the perfect situation for Fairfax.

Scenario....rising rates spike globally....as the trillion dollar bond market gets spooked...and unwinds quickly. Many are naked with tide heading out get caught run for the door...drives rates on the 30 year to 4.5 to 5%.

This would achieve many things for the central banks who have-are controlling the bond markets

1. We get a correction in the market of between 5 and 10%...preferably 10.1% for governments.

2. Crypto mania nonsense gets crushed without CB’s having to do it themselves

3. Risk and moral hazard are at least thought of....

4. The process would likely be quick and painless as the those that can (Fairfax) would be heavy buyers of a 5% 30 year....this would help global financials greatly if the could refinance their bond portfolio’s at higher rates and strengthen banks balance sheets. However many would suffer massive bond losses in the short term.

5. Rationality in a stupid environment May be achieved for a short while...but the bull market will continue in equities because cash returning to the bond market on short maturities will hold long rates down...and actually create a capital gains opportunity in bond buying and equities that sell off.

Not sure how Fairfax shares will-would react to the above scenario which appears to have already started....it may be possible to wait...or you could have a spike in the share price. Either way they are in a position to make a lot of money if this trend continues.
Title: Re: Fairfax 2018
Post by: Dazel on January 22, 2018, 03:03:19 AM


Feels like 1994

http://fortune.com/2013/02/03/the-great-bond-massacre-fortune-1994/

https://www.ft.com/content/32cca748-8fe8-11e2-9239-00144feabdc0

You can multiply the bond loss numbers by at least 10

I won’t paste a late 1993...1994 stock market chart but if you are paying attention...take a look it is eerily similar to where we are now....

Once again if 2018 played out like 1994 the global central banks would be over the moon with the outcome....and the world would continue to grow because the bond losses would be quick and prices would stabilize and recover by the end of the year... It’s what I would do if I ran the CB’s. ECB would slow buying th long end of the curve and US treasury would sell their longer dated bonds...easy to do if they go that way. Sad they control things but they do until they don’t.

We would have Fairfax $1000 in that scenario.

Guns
Gold
And Fairfax
Title: Re: Fairfax 2018
Post by: Cigarbutt on January 22, 2018, 05:49:26 AM
"Feels like 1994"
These days, really looking at optionality in FFH bond portfolio.
Mr. Bradstreet has done an amazing job over time and the return component of the bond portfolio may not have been (and may not be) fully appreciated.

Speaking of 1994, FFH had a net negative move on unrealized gain on bonds of 20,8 million then with the message that bonds would fluctuate and could be held to maturity. SE was 391,9 million. In 1995, the net move was +39,2 million.

In 1997, as per annual disclosure, Mr. Bradstreet was building a significant put bond position with dual maturity dates and that position continued to grow++.
In 1999, long bonds went down about 20% and FFH reported 1,241 billion unrealized loss on bonds. SE was 3,116 billion and then, FFH was facing a difficult negative cash flow environment. The unrealized loss position reversed after.

What's the point:
-FFH (Mr. Bradstreet) has been able to find bond opportunities in many different circumstances.
-They don't seem to mind huge unrealized positions as long as their long term thesis holds.
-My understanding is that they mostly expected rates to go down over time.
-The actual cash position now at FFH is highly unusual.

I understand the investment team is (was?) morbidly fascinated by the the way Japan evolved in terms of general interest rate yields.
In a way , if you're not mindful of the JGBs-type widow maker trade, a simple way to make money would be to short bonds if you expect yields to go up. No?
Can't wait to see the evolving strategy on this front.

Title: Re: Fairfax 2018
Post by: chrispy on January 22, 2018, 07:10:17 AM
Looking forward to reading those articles once I am done work today.

I much prefer cash and not shorting after the short equities fiasco
Title: Re: Fairfax 2018
Post by: Dazel on January 22, 2018, 09:38:04 AM
https://www.bloomberg.com/news/articles/2018-01-22/biggest-u-s-east-coast-oil-refiner-seeks-bankruptcy-protection

As I said earlier expect a lot of these....the system is about to be cleared of the zombies....the way it should be. This will bring opportunity to Fairfax...and create action in the credit markets.
Title: Re: Fairfax 2018
Post by: StubbleJumper on January 22, 2018, 01:39:00 PM
A couple of thoughts on various topics that have come up:

1/ On the corporate governance thing. It reassures me that a) Ben Watsa does not work at Fairfax, which suggests Prem wants to avoid being seen as nepotistic; b) there is a known likely successor in running the business. But I would like greater clarity on what happens to Prem's shares and votes when he dies.

2/ On realising Blackberry...the most obvious option is to sell the business - even at 2x of 3x up from here it's not a big ticket in the grand scheme of things. The second option is to engineer a block sale, probably at a slight discount. Fairfax will have c.16% after conversion. They can find a home for that in endowments and pension funds if BBRY is once again seen as a success and is paying a dividend out of recurring RADAR and QNX revenues. Failing that, they can go to market with the block. Bottom line: this isn't the first time that a company has taken both a big stake and a directorship in a turnaround. It happens in PE and activist investing all the time and there are well-trodden exit pathways.

3/ The alternative capital in the industry a) goes away with higher rates as Dazel says, and b) needs underwriting which you can charge for. Lancashire have a great model for taking advantage of it. Fairfax could do the same - but to the extent that they do, they lose float. .


On #1, I'd actually rather see Ben Watsa working somewhere at FFH and have the relationship disclosed clearly in the filings. IE, Ben Watsa, son of Prem,  works as a Senior XXXX Analyst in YYYYY subsidiary of FFH.  Excluding his pay as a Director, his employment salary for 2017 is $XXX,XXX, and ZZZ options for FFH stock were granted to him during 2017. 

Instead of that type of clarity, we have Ben being hired by an investment company run by a guy who happened to be on the same board of directors as Prem of a major Canadian charity.  So this fellow seems to have hired Ben, and then Prem seems to have elected to have $50m of shareholders' money managed by that fellow's company.  I have never found any disclosure of the terms of that management agreement, so I cannot really say whether FFH shareholders are paying $500k per year (100 bps), or $1m per year (200 bps) or some other amount to have that $50m managed.  There are many possible ways that this collection of facts could be spun, some of which are quite innocent and would be demonstrably in shareholders' interest, while other spins could be nefarious and indicative of the type of nepotism that SD noted earlier in this thread.  Clear and complete disclosure would be preferable.

On #2, your take is pretty much in alignment with mine.  To unload the BB stake, FFH would need to find one or more parties who are able and interested to drop $1.5B on a large block of the company (and here's hoping that the stake is headed towards $2B!).  That will be a very thin market, even it if is a pathway that has been trodden in the past.  FFH could end up holding this for quite some time before an appropriate buyer can be found.  I am not yet convinced that BB will become a cash-cow that pays a meaningful dividend, but we can always hope that happens.



SJ
Title: Re: Fairfax 2018
Post by: petec on January 23, 2018, 02:35:44 AM

On #2, your take is pretty much in alignment with mine.  To unload the BB stake, FFH would need to find one or more parties who are able and interested to drop $1.5B on a large block of the company (and here's hoping that the stake is headed towards $2B!).  That will be a very thin market, even it if is a pathway that has been trodden in the past.  FFH could end up holding this for quite some time before an appropriate buyer can be found.  I am not yet convinced that BB will become a cash-cow that pays a meaningful dividend, but we can always hope that happens.

SJ

I'm not convinced either - but:
1/ If RADAR and QNX don't take off at Blackberry, in which case I would expect the shares to drop, Prem can exit just over half the position at $10 simply by letting the convert expire.
2/ If RADAR and QNX do take off the market for a block won't be thin - even if they have to do a secondary at a discount.
3/ Worst case is that RADAR and QNX grow somewhat without blowing the doors off and the shares get stuck at say $15, but you can still do a secondary at a discount.

Agree with you re: better disclosure about the prodigal son. 
Title: Re: Fairfax 2018
Post by: Dazel on January 23, 2018, 04:26:41 AM
https://www.indiatoday.in/india-at-davos-2018/story/narendra-modi-in-davos-live-pm-to-deliver-wef-keynote-at-elite-gathering-of-global-ceos-1152136-2018-01-23

While this will not show not up on the balance sheet of Fairfax India or Fairfax it is extremely important. Part of the Fairfax thesis is the continued growth of India and Modi pushing for foreign investment is important for that growth. India has not been at Davos since the 1990’s and their growth was enemic. With China tapped out with massive debts...I am betting India takes over the torch for global growth as their demographics are fantastic. It’s early days of course but Fairfax has a huge head start. The Indian stock index is too small (overvalued because too much money chases small number of stocks) and there is very little opportunity to enter the country and capitalize on this growth. Foreigners have very little opportunity to buy into private business the way Fairfax has...

Fairfax and Fairfax India are a great way to capitalize on this growth...this probably should be on the Fairfax India thread as well....the jewel of the Fairfax family could be “Go Digit” the Indian start up insurance company. One thing all will agree on is Fairfax has proven to build companies well and have created incredible value in the process. Munger thinks Ajit Jain has created about a $60-$80b dollars of market value through building insurance operations from scratch. I think Fairfax as a whole can do that.

https://timesofindia.indiatimes.com/business/india-business/fairfax-to-back-general-insurance-startup-digit/articleshow/59117659.cms
Title: Re: Fairfax 2018
Post by: Dazel on January 23, 2018, 04:39:07 AM
https://godigit.com/why-i-started-digit/

It looks like go Digit is a fintech Insurance co. And it is located in Silicon Valley of India...maybe they will use blockchain technology. List on the Nasdaq and be worth a couple billion next month!

Kidding about the listing!!!Lol. But not blockchain...they have technology around their home office to implement blockchain into their operations.
Title: Re: Fairfax 2018
Post by: Dazel on January 23, 2018, 04:50:45 AM


SD our resident expert on all things Crypto is correct with his points on what blockchain will do to the insurance industry....costs could fall dramatically in the next couple of decades. Fairfax presence in Silicon Valley India if they integrate and learn from growing “Go Digit” and their experience in Blackberry and the technologies and people that are available to improve efficiencies at their large operations could be very rewarding. Block chain is the future (as much I poke fun at the crypto currencies!)...any advantage in its implementation is a competitive advantage.

Case in point technology has allowed the big banks in the U.S finally be able to integrate across their huge operations with scale. JPM had record margins last quarter and the their costs should continue to drop.
Title: Re: Fairfax 2018
Post by: Dazel on January 23, 2018, 05:12:42 AM


SJ,

Your concern about Fairfax buying longer term bonds will not be relevant for the third quarter as almost half the value of the bond portfolio is in corporate bonds. I would have to assume that a large part of the bond portfolio is the Blackberry convertible which of course is going up because the common shares are rising and the converts worth more.

Fairfax has virtually nothing in government bonds in relation to the size of their invested assets in the terms of long term duration....so they will have sidestepped the current bond “whacking” as of the 3rd quarter....

But I can’t say that for the fourth quarter...so looking forward to the annual report...I bet Bradstreet is still waiting.

Title: Re: Fairfax 2018
Post by: petec on January 23, 2018, 06:11:07 AM

SD our resident expert on all things Crypto is correct with his points on what blockchain will do to the insurance industry

What thread is this discussion on? Thanks.
Title: Re: Fairfax 2018
Post by: wondering on January 23, 2018, 07:01:00 AM
http://business.financialpost.com/news/retail-marketing/cara-operations-signs-deal-to-buy-steakhouse-chain-keg-restaurants-ltd

Does anyone know what Fairfax's cost was in Keg Restaurants?
Title: Re: Fairfax 2018
Post by: Dazel on January 23, 2018, 07:01:50 AM

Petec,
 I believe SD came on the Fairfax 2017 thread with the benefits Fairfax and all insurance companies would reap from Blockchain transactions...it was one of the Fairfax threads in the fall anyways. He is all over the Crypto currency threads...to get the Blockchain discussion.
Title: Re: Fairfax 2018
Post by: petec on January 23, 2018, 07:26:35 AM
http://business.financialpost.com/news/retail-marketing/cara-operations-signs-deal-to-buy-steakhouse-chain-keg-restaurants-ltd

Does anyone know what Fairfax's cost was in Keg Restaurants?

$85m for 51% I believe. 2014 annual letter.

I think Fairfax are getting about $105m here and presumably drew dividends from Keg - it doesn't seem to have grown its restaurant count much under their ownership so I assume it was a cash cow.
Title: Re: Fairfax 2018
Post by: StubbleJumper on January 23, 2018, 07:36:51 AM
http://business.financialpost.com/news/retail-marketing/cara-operations-signs-deal-to-buy-steakhouse-chain-keg-restaurants-ltd

Does anyone know what Fairfax's cost was in Keg Restaurants?

$85m for 51% I believe. 2014 annual letter.

I think Fairfax are getting about $105m here and presumably drew dividends from Keg - it doesn't seem to have grown its restaurant count much under their ownership so I assume it was a cash cow.


So ~20% over 5 years plus the divvies (if any)?  Well, at least it's a gain.


SJ
Title: Re: Fairfax 2018
Post by: Viking on January 23, 2018, 08:37:33 AM
The restaurant business is very challenging. I am happy FFH is selling The Keg. There must be much better opportunities out there to redeploy the cash.
Title: Re: Fairfax 2018
Post by: petec on January 23, 2018, 08:51:03 AM
The casual dining restaurant business is also very profitable and cash generative! Not saying it is easy but many lasting fortunes have been built in it. Fairfax is not really reducing their exposure given they control Cara and are largely being paid in Cara shares.
Title: Re: Fairfax 2018
Post by: Dazel on January 24, 2018, 04:14:46 AM


If bonds fall example

Travelers Insurance has  $70b in bonds with half of it in corporates....
$2b private equity
$900m
$3b equity
This has been a genius move for the 30 years...can you imagine what their sensitivity to losses are if rates were to rise 100 or 200 basis points? Sure longer term they will role short maturities into higher rates...but there would be significant losses to mark to market equity.

They had significant reserve reduncy for the hurricane season this year...this was likely the reason for all insurance companies rising yesterday...it looks like costs for the 2017 hurricanes will come down. This is likely one of the reasons we are not getting a hard market.
Title: Re: Fairfax 2018
Post by: petec on January 24, 2018, 04:38:22 AM
What's the duration on their bonds?
Title: Re: Fairfax 2018
Post by: Dazel on January 24, 2018, 05:39:16 AM
They do not break it down their SEC filing.
3.3% yield on the bond portfolio....the 30 year U.S treasury bond is below 3%.

While the corporates will yield higher it is obvious that they have significant longer duration bonds. They have $400m in hedges for interest rate risk which is not broken down.

To be clear this has been a very smart move by them...and will continue to be if rates don’t rise...the 10 year has risen about 35 basis points recently. It’s up 65 basis points from the low in August...

These are not huge moves....3% is likely pain threshold which may bring panic for those holding long duration bonds and a possible Fairfax opportunity entry point if we were to spike around that yield.

Title: Re: Fairfax 2018
Post by: Dazel on January 24, 2018, 06:30:08 AM


Another Fairfax point which has not been made and it may appear as if the India drum has been beat to death here...is that the $5b investment there is a value play but has been done with the expectation of the holdings being growth companies.
As Prem stated “our Indian companies are growing by leaps and bounds”....this is a different approach for the Fairfax team...as pure value has  dominated investment decisions over 35 years. Prem is bullish which is not the impression the market has. They expect growth and the investment portfolio is spring loaded for it....the bets are on Emerging markets not the U.S stock market so it’s not getting any attention.
If global growth continues the emerging market bets will certainly appreciate many fold the developed market returns....Bradstreet will renter the bond market in bigger way, and Fairfax will realize returns on the old dogs, Greek investments,Resolute, Blackberry etc.
It’s a nice set up for reaching Fairfax earnings potential as Insurance premiums will be solid...
Title: Re: Fairfax 2018
Post by: StubbleJumper on January 24, 2018, 06:41:35 AM


If bonds fall example

Travelers Insurance has  $70b in bonds with half of it in corporates....
$2b private equity
$900m
$3b equity
This has been a genius move for the 30 years...can you imagine what their sensitivity to losses are if rates were to rise 100 or 200 basis points? Sure longer term they will role short maturities into higher rates...but there would be significant losses to mark to market equity.

They had significant reserve reduncy for the hurricane season this year...this was likely the reason for all insurance companies rising yesterday...it looks like costs for the 2017 hurricanes will come down. This is likely one of the reasons we are not getting a hard market.


It could be even worse for Travellers if they truly have half in corporates.  Any long bond gets whacked when there is a generalized interest rate increase.  On top of that, risk premia for corporates are pretty thin these days, so if you should also see a re-pricing of risk, the long corporates would get doubly whacked.

I like what FFH has done with the bond port, and I hope that they've taken steps to get the Allied port cleaned up...


SJ
Title: Re: Fairfax 2018
Post by: ValueMaven on January 24, 2018, 05:11:40 PM
Cant wait to get our dividend tmrw!  I am reinvesting right back into FFH

Sincerely,
VM
Title: Re: Fairfax 2018
Post by: petec on January 25, 2018, 12:43:11 AM

Another Fairfax point which has not been made and it may appear as if the India drum has been beat to death here...is that the $5b investment there is a value play but has been done with the expectation of the holdings being growth companies.


Agreed. It seems to me there's been a shift towards helping build companies - Cara, TCIL & subs, India/Africa & subs, maybe Grivalia - rather than just picking up cigar butts. Probably a combination of scale, and their experience in building Lombard and First.
Title: Re: Fairfax 2018
Post by: wondering on January 25, 2018, 08:10:41 AM
I hold my FFH shares in a RBC Canadian dollar account.  The FX rate I got my dividends was 1.2267.  How does that compare with other brokers?
Title: Re: Fairfax 2018
Post by: DynamicPerception on January 25, 2018, 09:57:49 AM
In TD   I received $12.1800
In RBC I received $12.2670
I simply divided the dividend by the numbers of shares.
Both $CDN accounts.
Also TD shows a Settlement date of 2018Jan25 and
     RBC shows a Settlement date of 2018Jan26.
Title: Re: Fairfax 2018
Post by: FFHWatcher on January 25, 2018, 10:32:24 AM
In TD   I received $12.1800
In RBC I received $12.2670
I simply divided the dividend by the numbers of shares.
Both $CDN accounts.
Also TD shows a Settlement date of 2018Jan25 and
     RBC shows a Settlement date of 2018Jan26.

$12.325 (1.2325) - Scotiaitrade strike that. That is my projected income. No divi yet. I was wondering why I actually had a good Forex rate. Scotia usually sucks. We'll see
Title: Re: Fairfax 2018
Post by: cwericb on January 25, 2018, 10:51:42 AM
RBC 1.2267 Jan 25/18
Title: Re: Fairfax 2018
Post by: StubbleJumper on January 25, 2018, 11:47:52 AM
I hold my FFH shares in a RBC Canadian dollar account.  The FX rate I got my dividends was 1.2267.  How does that compare with other brokers?


You are generally better to journal your shares over to the US side of your account and then you get the divvy in US dollars.  You can always convert it later if you want cdn.
Title: Re: Fairfax 2018
Post by: tripleoptician on January 25, 2018, 03:57:37 PM
I hold my FFH shares in a RBC Canadian dollar account.  The FX rate I got my dividends was 1.2267.  How does that compare with other brokers?


You are generally better to journal your shares over to the US side of your account and then you get the divvy in US dollars.  You can always convert it later if you want cdn.

Wouldnt that convert the dividend into a US (foreigb) dividend which would have worse taxatiin than a Canadian dividend?
I guess this question assumes it is held in  a non- registered tax account
Title: Re: Fairfax 2018
Post by: StubbleJumper on January 26, 2018, 04:38:20 AM
Nope, the tax status of a divvy is not about the currency.  It's about whether the Corp is an eligible cdn corp.  I claim the divvy tax credit every year, just need to convert to cdn dollars.
Title: Re: Fairfax 2018
Post by: Daphne on January 26, 2018, 05:18:15 AM
HSBC gave me a rate of 1.2280
Title: Re: Fairfax 2018
Post by: ourkid8 on January 26, 2018, 06:03:17 AM
TD Waterhouse 1.21800...
Title: Re: Fairfax 2018
Post by: dartmonkey on January 26, 2018, 02:42:46 PM
Nope, the tax status of a divvy is not about the currency.  It's about whether the Corp is an eligible cdn corp.  I claim the divvy tax credit every year, just need to convert to cdn dollars.


This is clearly true in tax law, but while checking this, I noticed that there has been a problem in the past with some brokers, notably Interactive Brokers (my broker) incorrectly withholding US tax on USD dividends. I presume this has now been cleared up, since I see no such withholding tax in my account statements in the past couple of years. Can anyone confirm?

Automatic conversion at disadvantageous rates (the worst being my other broker, TDW, it seems) is really a big deal for a lot of people. Losing 1.5% on a few thousand dollars of dividends is bad enough, and can be avoided by journalling over the shares into a US account. But then, you still have to be careful not to forget about this issue, because if you sell your shares, now denominated in dollars, without first journalling those shares back to the Canadian side. You don't want to save $50 on the dividends every year for a few years and then get robbed by your broker for $1000. Of course, the simple thing to do would be for brokers to just provide a decent rate on the forex trade (as Interactive Brokers does for instance), but don't hold your breath.
Title: Re: Fairfax 2018
Post by: StubbleJumper on January 26, 2018, 04:35:44 PM
Most of my port is in US securities or cdn interlisted securities.  So, if you sell ffh from the US side of your account and you want to invest the proceeds in the Royal Bank, it's no biggie, just buy it on the nyse.  In the worst case that you want to buy something cdn that is not interlisted, it's at least worthwhile to find low cost alternatives for exchange, notably a Norbert's Gambit, when you are dealing with $50k rather than consistently getting screwed on $1k divvies.
Title: Re: Fairfax 2018
Post by: Dazel on January 29, 2018, 03:38:30 AM


The Fairfax thesis continues to trend in the right direction....Bonds continued to get hit.
10 year is above 2.70% at 2.72 and the 30 year is almost at 3%.

Once again are we headed for 1994? In a perfect world for Fairfax a quick and painful bond sell off taking the 10 year over 3% and the 30 year much higher would not only chase the Bond holders out of fixed income it would create the market correction that gives us a stock pickers market where value once again matters and Fairfax does its best work. A large cash position hurts returns until it doesn’t.

A mans best friend

“An old wife, An old dog and ready cash!”

Benjamin Franklin
Title: Re: Fairfax 2018
Post by: Dazel on January 30, 2018, 07:14:54 AM


If you are holding Fairfax and you know how they are positioned you are licking your lips...both from allocating the almost 50% cash or almost $20b from a yield of zero into stocks and bonds...while avoiding the large bond losses and equity losses that those holding bonds and over weight stocks “may” be facing.

I think everyone is nuts...Fairfax is the only company that I own right now....and unfortunately I did not get to short crypto and pot stocks yet....and may be wrong of course.

But to see Fairfax stock falling while other financials rise...well is funny. Enjoy the fall! Prem will get a better price on the buyback and smaller investors are capable of buying in...volumes are enemic ...quiet period before earnings....and those that were here for the dividend are selling into no volume. I don’t care. This what I and Fairfax have been waiting for...the lunacy to reset.
Title: Re: Fairfax 2018
Post by: Dazel on January 30, 2018, 07:19:15 AM


Would be nice to see a 10 to 15% correction in the market...and the 10 year hit 3% plus.
Title: Re: Fairfax 2018
Post by: Dazel on January 30, 2018, 08:08:03 AM
Fairfax does not need the correction “I” am hoping for....

All financials have traded up on the rising yields in the last week...Fairfax has dropped...ex divvy was Jan 18...the risng yields were after this actually.

Travelers (example I used with a $70b bond portfolio that is dropping in value!)is up today and pennies away from their 52 week high....while Markel is up another 1% and near a 52 week high of $1121 USD...FFH $$647 Cdn today.

Prem time to up your game lets see the buy back in big way...Fairfax is hated for a reason...underperformance....show your partners you are aware that market has forgotten Fairfax and you believe in our future. I am tired of seeing you and Francis  Chou and all the rest of the team get shit on! Announce the earnings early and buy back at these cheap levels....show us Fairfax has a heart beat...the employees and every one else who has trusted in you and got burned while Markel and the rest outperformed needs to see Fairfax show it’s teeth. It’s cheap we can see it take advantage of it!

As Tom Brady says “Let’s go”!

Dazel
Title: Re: Fairfax 2018
Post by: ourkid8 on January 30, 2018, 08:48:38 AM
Why would he announce earnings early when he can aggressively repurchase the maximum daily shares quietly?   

Announce the earnings early and buy back at these cheap levels....show us Fairfax has a heart beat...
Title: Re: Fairfax 2018
Post by: Dazel on January 30, 2018, 09:19:26 AM

To get the lower price shares now...the multiple is stupid low compared to Markel and the rest of the market.

Markel trades at almost twice the book value Fairfax does...

Markel bought $84m shares back  through 3 quarters Fairfax bought  $129m back.

What’s Markel’s upside?

Fairfax has triple the revenues and more than twice the size of investments and Markel and Fairfax has approx the same market cap.

Markel has approx the same size bond portfolio as Fairfax and half the total size investments.

There is urgency when you are that mispriced as the buy back would almost twice as accretive to Fairfax on each share purchase because of the valuation mismatch.

The fact is Prem needs to act vigorously and quickly because like many here no one is looking and nor do the care about the crazy mismatch in Markel vs Fairfax. Markel should try to buy Fairfax it would be the deal of the century for them even the paid a 40% premium to today!

Fairfax is forgotten...Prem needs to take advantage of it...it may not matter to the investment community but the employees know.....its demorilizing to go to work and know that the rest of 8ndustry stock prices keep rising and are valued at almost twice as more as your are. Berkshire has thrived on always havin* a high valuation and employee satisfaction because they feel like they are the best. Markel would feeel that way too!

Fairfax has lost its swagger...Prem needs to show them and his partners  that he believes Fairfax should have the same valuation as Markel or better. They used to and now they are depressed that depresses the employees their clients as well....this is one of the most important aspects of a CEO’s job and to honest he is failing miserably right now. Look at this boards feelings towards him and Fairfax!!!!!! Dislike.

That’s why now and big....it’s cheap let’s take advantage....tender offer time....Fairfax is loaded with cash....get everyone excited about the future and create some value in buying your own company!



Title: Re: Fairfax 2018
Post by: Daphne on January 30, 2018, 09:45:09 AM
It’s in pre results quiet period and therefore not allowed to buy back until after results
Title: Re: Fairfax 2018
Post by: Viking on January 30, 2018, 09:53:22 AM
Dazel, I think we are still in the early days of the Fairfax turnaround. Long bond yields have just started their next leg higher and yields could continue to move higher for the next couple of years. Yes, FFH has positioned its bond portfolio very well and the company is sitting on a bunch of cash. However, my guess is FFH will not be rewarded by Mr. Market simply for playing good defence. FFH has dramatically underperformed for the last 7 years; it is going to take time (my guess is a couple of years) to rebuild investor trust.

Investors are going to want to see how the cash is deployed and this will likely happen slowly over the next couple of years. Investors will reward FFH for driving earnings and growing book value, just like any other company. This will be hard to do in the short term when 1/2 of their portfolio is sitting in cash and short term investments ($17 billion of $35 billion).

I agree that FFH is positioned very well. The shares are cheap (and I am a buyer once again for the first time in many years). If the long bond continues higher and FFH shares continue to go lower I will be happy to buy more shares.

I am looking forward to FFH releasing Q4 results. Lots to learn:
1.) How is bond portfolio positioned compared to Q3?
2.) How much cash is at holding company level?
3.) What will they be doing with $1 billion after tax proceeds from First Capital sale? If used for share repurchases then, yes, we could see a jump in the share price.
4.) What is the plan with $17 billion cash and short term investments?
5.) Updates on loss estimates from this past year; any new news? How does reserving a Allied look?
6.) How is insurance pricing for 2018 looking? What kind of price increases are they able to get?
Title: Re: Fairfax 2018
Post by: netnet on January 30, 2018, 10:41:02 AM
What book value are you using to say that it is as cheap as ever?  A too quick and dirty off of the third quarter results is north if 1.5.  Obviously there are adjustments for the sales etc., but half of Markel?
Title: Re: Fairfax 2018
Post by: Dazel on January 30, 2018, 10:56:09 AM
Add First capital Sale Dec 28...and insurance profit depending fires....$15b annualized sales vs. Markel’s $5b
Title: Re: Fairfax 2018
Post by: ourkid8 on January 30, 2018, 11:10:56 AM
https://globenewswire.com/news-release/2017/09/29/1134849/0/en/Fairfax-Enters-Into-Automatic-Share-Purchase-Plan.html

I believe this would be an approved exemption to allow them to repurchase stock during the quiet period. 

It’s in pre results quiet period and therefore not allowed to buy back until after results
Title: Re: Fairfax 2018
Post by: ourkid8 on January 30, 2018, 12:18:50 PM
http://www.cornerofberkshireandfairfax.ca/forum/fairfax-financial/fairfax-has-started-repurchasing-shares/

Fairfax has repurchased $208M in stock as of Sept 25, 2017.  Let's all hope that number is closer to $1B when they announce their earnings.

Markel bought $84m shares back  through 3 quarters Fairfax bought  $129m back.
Title: Re: Fairfax 2018
Post by: Dazel on January 30, 2018, 12:26:54 PM


Net Net to be clear it’s not exactly half of Markel book value premium and I am not trying bash Markel I think they are an excellent operation! it is an obvious mismatch in pricing when you look the two side by side....Unless you think Markel is that great and Fairfax is that Bad!

Title: Re: Fairfax 2018
Post by: Dazel on January 30, 2018, 12:31:40 PM

And to show how much people give a crap about the valuations.....Lol. Who do you think is happier coming to the office on Monday morning?

Mkl is up $23 USD
Fairfax down $13 cdn
Title: Re: Fairfax 2018
Post by: Partner24 on January 30, 2018, 01:55:52 PM


Net Net to be clear it’s not exactly half of Markel book value premium and I am not trying bash Markel I think they are an excellent operation! it is an obvious mismatch in pricing when you look the two side by side....Unless you think Markel is that great and Fairfax is that Bad!

With Markel, what you see is what you get. Very straightforward people. Their plan is clear and they walk the talk. With FFH, you get a "Oh, Trump is elected now" kind of line for billions of dollars lost. Huge...huge lack of candor.

Remember the "we prefer to be wrong wrong...right than to be right right...wrong" kind of line that we heard for years? What a joke. Finally, it was "wrong...wrong...oh ok Trump!" kind of line. Markel was more like "we don't play that game...we don't play that game...we still don't play that game" kind of line.
Title: Re: Fairfax 2018
Post by: Cardboard on January 30, 2018, 02:16:04 PM
Who has told you that employees are demoralized because the stock price is not skyrocketing or moving higher, faster than Markel?

It is up around 6% over the last 12 months + for those who own it as employees they just received a $10 U.S. dividend cheque + for the vast majority, their salary and bonuses eclipse any value that they get from the stock.

Now as an investment, it is trading well above book value. Earnings are among the most erratic you will find. They have a nice defensive position but, last time they did and had an opportunity to deploy, they did a combination of sitting on their hands and investing some in USB, JNJ and a few others only to dump them after some appreciation. Then they shorted the market for years and bought Blackberry, SandRidge, Greek stocks and what else? Should I be skeptical about what they will do next time?

And he can buyback all the stock he wants above book value, it won't change a thing or the issue which I mentioned for years or a lack of pre-tax operational earnings when you add in all costs: they lose money everytime when there is no capital gains. And because of that and insurance regulation, too little of book value is actually invested in common stocks and businesses which can earn more than treasuries.

Think about it this way. You have a brokerage account and you use some margin. However, your interest cost is higher than the dividends and interest that you receive on your holdings. So the only upside possible is through capital appreciation and as we should all know, this is very erratic.

Would you pay twice the book value for that brokerage account?

Then on top of that, they have restrictions on where they can put the money which you don't and have a complicated business to manage. When the earnings from that business are added to the interest and dividends, it still generates a loss like that brokerage account.

Cardboard
Title: Re: Fairfax 2018
Post by: Dazel on January 30, 2018, 06:04:10 PM


Cardboard and Partner24,


That is what I am looking for...you are both correct. Show me the money...anger, disappointment and disbelief that investment team outside of Brian Bradstreet has been soooo bad! Fairfax needs to deserve respect and the investment team has to prove themselves. I think we all get that!

The insurance companies, the ability of Fairfax to build new insurance companies with Brian Bradstreet creating bond income over 35 years are undervalued. If Fairfax becomes simple like Markel....which I am obviously betting they are the the time to buy back is now.



If you are talking Apples to Apples compare Markel insurance to Fairfax....Fairfax underwriting has been very good for sometime.

Markel 2016 $316m and 2015$429m
Fairfax 2016 $576m and  2015$704m

Investment portfolio’s are two to one in size $40b Fairfax and $20b at Markel.

Same market cap.....Markel has done well investing and insurance has been solid...the question is will Fairfax do the same?

I am betting yes. The math is on their side as the same performance in combined ratio and investment return would be at least double the income for Fairfax over Markel at starting point from these market caps.

 Iam tired of standing up for Fairfax many of the negative press is deserved!!!!Sooo good luck all...will wait for Prem to walk the walk...no more talk.

Dazel



Title: Re: Fairfax 2018
Post by: petec on January 31, 2018, 12:47:42 AM
Would you pay twice the book value for that brokerage account?

That depends on the management's record of growing the account! My answer is no, but I would hold at that price (depending on other opportunities).
Title: Re: Fairfax 2018
Post by: gary17 on January 31, 2018, 01:14:27 AM
fairfax is trading at more than twice book?
Title: Re: Fairfax 2018
Post by: Cardboard on January 31, 2018, 05:43:40 AM
It trades at around 1.25 times book or already a premium being paid for the structure that I have described. However, Dazel and others seem to think it is worth a lot more hence why I used arbitrarily 2 times book.

I see people on this website being quite critical of hedge fund and mutual fund managers. Why not the same amount of skepticism when it comes to Fairfax or Markel?

And to say that Fairfax should trade higher or at a higher multiple simply because Markel trades there is not sound analysis. Maybe that Markel is just overvalued?

I would say that one should be willing to pay a premium for these types of businesses only if they generate pre-tax income from their insurance business alone and the leverage that they are employing is so attractive that it generates outsized returns with average investment performance.

Then don't forget about the impact of double taxation or taxes that the corporation will pay then you also. Not the case when you buy a fund or pick your own investments.

Cardboard

Title: Re: Fairfax 2018
Post by: petec on January 31, 2018, 06:42:15 AM
It trades at around 1.25 times book or already a premium being paid for the structure that I have described. However, Dazel and others seem to think it is worth a lot more hence why I used arbitrarily 2 times book.

I see people on this website being quite critical of hedge fund and mutual fund managers. Why not the same amount of skepticism when it comes to Fairfax or Markel?

And to say that Fairfax should trade higher or at a higher multiple simply because Markel trades there is not sound analysis. Maybe that Markel is just overvalued?

I would say that one should be willing to pay a premium for these types of businesses only if they generate pre-tax income from their insurance business alone and the leverage that they are employing is so attractive that it generates outsized returns with average investment performance.

Then don't forget about the impact of double taxation or taxes that the corporation will pay then you also. Not the case when you buy a fund or pick your own investments.

Cardboard

I have no particular issue with FFH's BV multiple (and certainly not its TBV multiple) but I do think the odds of BV growth are decent. I'd rather have my return from growth than multiple expansion.

I think there is a huge amount of scepticism about FFH on here. Plus, personally I think they have a better record than most fund managers, better-aligned incentives, the advantage of permanent capital, the ability to be paid to borrow (float), and the opportunity and ability to generate value in operations as well as investing. I have relatively little doubt that FFH will outperform a global index over the long run. Most funds won't, and then they deduct fees. I'd happily invest in their managers at 1x (or 2x!) bv, but not the funds. if I did invest in the funds, I'd invest in one that had a super long term record but a terrible short term one, where everyone was saying the manager had "lost it" and must have just got lucky in the past. Sound familiar? ;)

Finally, I'd pay a premium to book if book is going to grow faster than the market. Book value assumes the business is worth no more than what it cost to build. In the case of recent acquisitions that may be fair, but where there are no intangibles it means ascribing no value to people, relationships, reputation etc. Given the combined ratios and the record that seems unfair to me.
Title: Re: Fairfax 2018
Post by: Partner24 on January 31, 2018, 07:11:38 AM


Cardboard and Partner24,


That is what I am looking for...you are both correct. Show me the money...anger, disappointment and disbelief that investment team outside of Brian Bradstreet has been soooo bad! Fairfax needs to deserve respect and the investment team has to prove themselves. I think we all get that!

The insurance companies, the ability of Fairfax to build new insurance companies with Brian Bradstreet creating bond income over 35 years are undervalued. If Fairfax becomes simple like Markel....which I am obviously betting they are the the time to buy back is now.



If you are talking Apples to Apples compare Markel insurance to Fairfax....Fairfax underwriting has been very good for sometime.

Markel 2016 $316m and 2015$429m
Fairfax 2016 $576m and  2015$704m

Investment portfolio’s are two to one in size $40b Fairfax and $20b at Markel.

Same market cap.....Markel has done well investing and insurance has been solid...the question is will Fairfax do the same?

I am betting yes. The math is on their side as the same performance in combined ratio and investment return would be at least double the income for Fairfax over Markel at starting point from these market caps.

 Iam tired of standing up for Fairfax many of the negative press is deserved!!!!Sooo good luck all...will wait for Prem to walk the walk...no more talk.

Dazel

You've done a great job Dazel and this board have done a great cheerfulness job over the years, especialy when FFH was in their bad years (Peter Eavis, naked shorts, reserves development, bad combined ratios, stock issues, etc.). Now FFH management has less support, and frankly it's well deserved. They get the reaction from their own behavior. It's more difficult to evaluate the intrinsic value of a business when you see both talk and walk changing like that, when you don't know when the top management will dilute your voting (even if shareholders say no the first time), and when you feel that the top management act more like sellers than business partners on the conference calls. 
Title: Re: Fairfax 2018
Post by: ourkid8 on February 01, 2018, 08:37:10 AM
Cardboard, you make a very valid point.  Fairfax is slowly tackling this issue by calling and replacing their high yield debt.  I would personally like them to substantially reduce leverage so earnings from their insurance operations will shine with consistent and upward pre-tax operational growth. I am really excited for the number of debt/warrant financing they are undertaking as this would provide that steady stream of FCF along with substantial upside.  I really believe we are at a turning point in the company. (1. Prem unlocking value in First Capital / ICICI  2. improving capital structure 3. debt/warrant investments 4.  holding a ton of cash and waiting to deploy 5. Large share repurchase etc...)

And he can buyback all the stock he wants above book value, it won't change a thing or the issue which I mentioned for years or a lack of pre-tax operational earnings when you add in all costs: they lose money everytime when there is no capital gains. And because of that and insurance regulation, too little of book value is actually invested in common stocks and businesses which can earn more than treasuries.
Title: Re: Fairfax 2018
Post by: Dazel on February 02, 2018, 05:41:22 AM

I think we all should have learned that book value is overrated...if you don’t think so study Munger. Buffett followed him...Prem will too (as I said I think he has moved this way but will have to prove it)...when he said Fairfax was cheap...he was not talking about book value...he specifically said the insurance companies are trading well below their intrinsic value and then he showed us by realizing the large gains in ICiCI Lombard and First Capital. In the process he gave up little intrinsic value in relation to earnings as they were very good deals and not really adding much in the way of operating earnings.

More importantly for the short term....Fairfax share price is dropping daily...while all other financials are rising. A rare opportunity these days...can’t help but let all of you know...it feels like 2003. (Partner24 thanks for kind comments you have been an MVP to this board keep up the great work!)

https://www.cnbc.com/2018/02/01/when-market-says-both-stocks-and-bonds-in-bubble-cash-is-king.html
Title: Re: Fairfax 2018
Post by: Dazel on February 02, 2018, 07:18:34 AM

Yep and there is the spike in interest rates  I was talking about....expect Sir Bradstreet to start buying long dated bonds soon....nice to have $20 billion lying around.

Fairfax down again (LOL) and Travelers up!! TRV will have billions in bonds losses and the bond market trillions!!(see previous discussion).....

1994

Fairfax can not possibly buy back enough stock here...Let’s go Prem
Title: Re: Fairfax 2018
Post by: StubbleJumper on February 02, 2018, 07:29:17 AM
If the price drops a bit more, we can start calling it a "dividend stock."   :P


SJ
Title: Re: Fairfax 2018
Post by: Dazel on February 02, 2018, 01:32:56 PM


I hope it tanks!
:)
Title: Re: Fairfax 2018
Post by: ValueMaven on February 04, 2018, 01:06:31 PM
The Allied World deal is HUGE by FFH...a lot of people are underappreciated the underwriting expertise that Allied will be bring to Corporate...not just in 2018, but FOREVER.  A lot of people have knocked FFH for so-so underwriting ratios; but as a long-standing Allied shareholder I can tell you these guys are top notch.  It was a brilliant move by FFH corporate...
Title: Re: Fairfax 2018
Post by: Viking on February 04, 2018, 08:00:41 PM
Value Maven, thank you for posting and sharing that you have been a long term shareholder of Allied. What are your thoughts of the size of the underwriting loss posted by Allied in Q3? I am just starting to follow Fairfax closely (after many years) and one of my watchouts is the size of the lost posted by Allied and Brit in Q3. I am not saying it is an issue; at this point I am just trying to learn more.
Title: Re: Fairfax 2018
Post by: StubbleJumper on February 05, 2018, 06:25:18 AM
FFH hasn't attached a dollar-value to this acquisition:

http://www.fairfax.ca/news/press-releases/press-release-details/2018/Fairfax-to-Acquire-Certain-Canadian-Assets-of-Carillion/default.aspx


Does anybody have any idea of the magnitude?


SJ
Title: Re: Fairfax 2018
Post by: ourkid8 on February 05, 2018, 06:33:45 AM
https://www.theglobeandmail.com/report-on-business/fairfax-poised-to-acquire-embattled-carillion-canada/article37851533/

"Carillion Canada, which accounts for about 11 per cent or about $1-billion of global revenues".  We are not buying all the Canadian assets so that's a rough idea of the size of this acquisition. 

FFH hasn't attached a dollar-value to this acquisition:

http://www.fairfax.ca/news/press-releases/press-release-details/2018/Fairfax-to-Acquire-Certain-Canadian-Assets-of-Carillion/default.aspx


Does anybody have any idea of the magnitude?


SJ
Title: Re: Fairfax 2018
Post by: cwericb on February 05, 2018, 06:44:14 AM
The Outland part of Carillion might be a good fit with Cara ?

Outland, a Carillion company,  is a leading provider of remote site accommodation and associated services, including camp management, catering, maintenance, housekeeping and tree planting to public and private sector customers across a wide range of industries, such as mining, utilities, forestry, oil and gas. This partnership complements the existing skills and capabilities of Carillion's support services business and enhances prospects for growth of our support services activities for clients across Canada.  For more information on Outland, please visit: www.outland.ca.
Title: Re: Fairfax 2018
Post by: petec on February 05, 2018, 07:01:44 AM
I bet they got that cheap.
Title: Re: Fairfax 2018
Post by: StubbleJumper on February 05, 2018, 07:09:14 AM
https://www.theglobeandmail.com/report-on-business/fairfax-poised-to-acquire-embattled-carillion-canada/article37851533/

"Carillion Canada, which accounts for about 11 per cent or about $1-billion of global revenues".  We are not buying all the Canadian assets so that's a rough idea of the size of this acquisition. 

FFH hasn't attached a dollar-value to this acquisition:

http://www.fairfax.ca/news/press-releases/press-release-details/2018/Fairfax-to-Acquire-Certain-Canadian-Assets-of-Carillion/default.aspx


Does anybody have any idea of the magnitude?


SJ



Hmmm.  Well, If it has ~$1b in revenues, would that be ~$200m in EBITDA?  If gross margins are ~20% then FFH can't really pay much more than the $750m debt that Carillon's Canadian operations owe.  I mean, you might be able to do 5X or 6X ebitda (ie, $1B or $1.2B), but 10X would be outrageous?


SJ
Title: Re: Fairfax 2018
Post by: cwericb on February 05, 2018, 07:18:34 AM
But they are not buying ALL of Carillions operations...
Title: Re: Fairfax 2018
Post by: StubbleJumper on February 05, 2018, 07:23:33 AM
But they are not buying ALL of Carillions operations...


Yes, but if I've understood correctly, the Cdn ops had rev of ~$1B.  Then I've gone the next perilous step of inventing an EBITDA margin and slapping some hypothetical multiples on it, and finally comparing it to the ~$750m of Carillon's Canadian debt. 

The only purpose of that exercise was to guess at the amount of cash going out the door from FFH.  So, can we assume that FFH guarantees the $750m of debt and throws maybe $250m of cash at the parent?


SJ
Title: Re: Fairfax 2018
Post by: ICUMD on February 05, 2018, 07:32:00 AM
Does anyone here have a purchase target price? 

I'm willing to jump in at the $550 range.
Title: Re: Fairfax 2018
Post by: cwericb on February 05, 2018, 07:45:20 AM
It is definitely going to be interesting to see how this all settles out. They have been very patient sitting on their cash, so they must be pretty sure they have picked this up at the right price.

(Reuters) - Insurer Fairfax Financial Holdings Ltd said on Monday it would buy some Canadian assets of bankrupt UK-based construction and services company Carillion for an undisclosed amount.

The deal would include facilities management at airports, commercial and retail properties, defense and select healthcare units, Fairfax said.

Carillion collapsed on Jan. 15 after its banks halted funding, triggering Britain's biggest corporate failure in a decade and forcing the government to step in to guarantee public services from school meals to roadworks.


Fairfax will also assume certain liabilities related to Carillion's Canadian operations.

Canada is one of the largest markets for Carillion outside the UK.

Canadian unions had previously urged Ontario's provincial government to end hospital services privatization after the collapse of Carillion.
Title: Re: Fairfax 2018
Post by: Dazel on February 05, 2018, 05:53:06 PM


Fall baby fall...buy Prem buy.
Cheers all! We have been waiting for this for awhile......

Title: Re: Fairfax 2018
Post by: Dazel on February 05, 2018, 06:36:54 PM


I expect at the end of quarter one Fairfax to have invested 85% of the $20 billion cash.


Old wife
Old dog
And ready cash
Title: Re: Fairfax 2018
Post by: petec on February 06, 2018, 04:33:57 AM

I expect at the end of quarter one Fairfax to have invested 85% of the $20 billion cash.


Come off it! This selloff hasn't created the kinds of values that would make them go all in. Unless it's in the 2y treasury for a yield pickup over cash with little duration risk. They'll keep leveraging their position as a preferred provider of capital but the fact that the S&P is back where it was 6 weeks ago isn't going to tempt them.
Title: Re: Fairfax 2018
Post by: StubbleJumper on February 06, 2018, 06:06:11 AM

I expect at the end of quarter one Fairfax to have invested 85% of the $20 billion cash.


Come off it! This selloff hasn't created the kinds of values that would make them go all in. Unless it's in the 2y treasury for a yield pickup over cash with little duration risk. They'll keep leveraging their position as a preferred provider of capital but the fact that the S&P is back where it was 6 weeks ago isn't going to tempt them.


Agreed.  We seem to have collectively forgotten what constitutes a sea-change in the markets.  That's what FFH is waiting for.  As you said, the bump in short term interest rates won't hurt them any, but I don't see many bargains yet in equities.  The one exception to that might soon be FFH's own shares.  Another few days of this fun, and we might be bouncing around BV, which IMO, would be a decent place to initiate a large repurchase.


SJ
Title: Re: Fairfax 2018
Post by: petec on February 06, 2018, 06:07:20 AM

I expect at the end of quarter one Fairfax to have invested 85% of the $20 billion cash.


Come off it! This selloff hasn't created the kinds of values that would make them go all in. Unless it's in the 2y treasury for a yield pickup over cash with little duration risk. They'll keep leveraging their position as a preferred provider of capital but the fact that the S&P is back where it was 6 weeks ago isn't going to tempt them.


Agreed.  We seem to have collectively forgotten what constitutes a sea-change in the markets.  That's what FFH is waiting for.  As you said, the bump in short term interest rates won't hurt them any, but I don't see many bargains yet in equities.  The one exception to that might soon be FFH's own shares.  Another few days of this fun, and we might be bouncing around BV, which IMO, would be a decent place to initiate a large repurchase.


SJ

Yes but even there they can only invest the holdco cash, not the float.
Title: Re: Fairfax 2018
Post by: StubbleJumper on February 06, 2018, 06:16:33 AM

I expect at the end of quarter one Fairfax to have invested 85% of the $20 billion cash.


Come off it! This selloff hasn't created the kinds of values that would make them go all in. Unless it's in the 2y treasury for a yield pickup over cash with little duration risk. They'll keep leveraging their position as a preferred provider of capital but the fact that the S&P is back where it was 6 weeks ago isn't going to tempt them.


Agreed.  We seem to have collectively forgotten what constitutes a sea-change in the markets.  That's what FFH is waiting for.  As you said, the bump in short term interest rates won't hurt them any, but I don't see many bargains yet in equities.  The one exception to that might soon be FFH's own shares.  Another few days of this fun, and we might be bouncing around BV, which IMO, would be a decent place to initiate a large repurchase.


SJ

Yes but even there they can only invest the holdco cash, not the float.


Some time over the next few months they'd need to dividend up a pile of money to the parent.  Last I checked, there was plenty of cash and plenty of statutory capital in the subs, so they could dividend a healthy amount to the holdco without really affecting underwriting capacity.  But, my guess is that they sit tight and wait for the next shoe(s) to drop.


SJ
Title: Re: Fairfax 2018
Post by: ourkid8 on February 06, 2018, 08:00:33 AM
Based on my quick and dirty estimate, we are around 1.1x book which includes sale of First Capital and The Keg, retained earnings from operations, reducing interest expense etc...


I expect at the end of quarter one Fairfax to have invested 85% of the $20 billion cash.


Come off it! This selloff hasn't created the kinds of values that would make them go all in. Unless it's in the 2y treasury for a yield pickup over cash with little duration risk. They'll keep leveraging their position as a preferred provider of capital but the fact that the S&P is back where it was 6 weeks ago isn't going to tempt them.


Agreed.  We seem to have collectively forgotten what constitutes a sea-change in the markets.  That's what FFH is waiting for.  As you said, the bump in short term interest rates won't hurt them any, but I don't see many bargains yet in equities.  The one exception to that might soon be FFH's own shares.  Another few days of this fun, and we might be bouncing around BV, which IMO, would be a decent place to initiate a large repurchase.


SJ
Title: Re: Fairfax 2018
Post by: racemize on February 06, 2018, 08:10:24 AM
Based on my quick and dirty estimate, we are around 1.1x book which includes sale of First Capital and The Keg, retained earnings from operations, reducing interest expense etc...


I expect at the end of quarter one Fairfax to have invested 85% of the $20 billion cash.


Come off it! This selloff hasn't created the kinds of values that would make them go all in. Unless it's in the 2y treasury for a yield pickup over cash with little duration risk. They'll keep leveraging their position as a preferred provider of capital but the fact that the S&P is back where it was 6 weeks ago isn't going to tempt them.


Agreed.  We seem to have collectively forgotten what constitutes a sea-change in the markets.  That's what FFH is waiting for.  As you said, the bump in short term interest rates won't hurt them any, but I don't see many bargains yet in equities.  The one exception to that might soon be FFH's own shares.  Another few days of this fun, and we might be bouncing around BV, which IMO, would be a decent place to initiate a large repurchase.


SJ

If you add in the unmarked gains I think it will get you to book value or less.
Title: Re: Fairfax 2018
Post by: StubbleJumper on February 06, 2018, 08:14:03 AM
Based on my quick and dirty estimate, we are around 1.1x book which includes sale of First Capital and The Keg, retained earnings from operations, reducing interest expense etc...


I expect at the end of quarter one Fairfax to have invested 85% of the $20 billion cash.


Come off it! This selloff hasn't created the kinds of values that would make them go all in. Unless it's in the 2y treasury for a yield pickup over cash with little duration risk. They'll keep leveraging their position as a preferred provider of capital but the fact that the S&P is back where it was 6 weeks ago isn't going to tempt them.


Agreed.  We seem to have collectively forgotten what constitutes a sea-change in the markets.  That's what FFH is waiting for.  As you said, the bump in short term interest rates won't hurt them any, but I don't see many bargains yet in equities.  The one exception to that might soon be FFH's own shares.  Another few days of this fun, and we might be bouncing around BV, which IMO, would be a decent place to initiate a large repurchase.


SJ

If you add in the unmarked gains I think it will get you to book value or less.


By unmarked gains, you mean investments like BB that have gone up, but haven't been marked to market?  I haven't paid any attention over the past few days, but I wonder whether all of those unmarked gains still exist.  Pretty much everybody's gotten a haircut over the past week, but I haven't specifically looked at FFH's major holdings.


SJ
Title: Re: Fairfax 2018
Post by: racemize on February 06, 2018, 08:21:21 AM
No, I meant the unmarked gains on the various equity accounted entities (mostly the Indian investments).  They list the amount in the shareholder reports.
Title: Re: Fairfax 2018
Post by: StubbleJumper on February 06, 2018, 08:25:57 AM
No, I meant the unmarked gains on the various equity accounted entities (mostly the Indian investments).  They list the amount in the shareholder reports.


Yes, it's always necessary to add in those amounts to the BV calc, and I guess now we ought to subtract US$10 for the divvy.  I did an adjusted BV calc a couple of months ago, but I don't have it handy.  My memory was that it was less than US$500 at the time, and now it would be $10 less because of the dividend.  But, in any case, we are not far from BV today.


SJ
Title: Re: Fairfax 2018
Post by: naboo on February 06, 2018, 09:18:35 AM
It will make me nervous to see FFH use most of its cash to buy at this level. FFH should have opportunity to purchase back below book value.
Title: Re: Fairfax 2018
Post by: Dazel on February 07, 2018, 07:40:51 AM
They have $2.5b at the holdco level...I think. That will be used for buybacks...they are not able to get that many shares daily because the volumes are low and the are restricted on how much % Wise they can buy on a daily basis...they will not spend all the cash on Buybacks right away...tender offer at$650 for $250 million might make sense....to take advantage of this sell off...And continue to pick away is likely the course....
I would love for them to buy big at these levels however! ....I feel intrinsic value here is much higher than the share price...many are emotional here.

Petec....slow down...most of the 85% investment of investment at the end of quarter one in accounts at the insurance level will go into bonds. Earnings power of Fairfax is being hidden by large cash balances.

Buy Prem buy....
Title: Re: Fairfax 2018
Post by: petec on February 07, 2018, 10:08:10 AM

Petec....slow down...most of the 85% investment of investment at the end of quarter one in accounts at the insurance level will go into bonds.


I'm well aware of that. But they're not going to go all in at the long end of the US sovereign curve either - like stocks, it's barely moved in the grand scheme of things. Hence my point that the only way they are going to put 85% to work is in the 2 year. Unless you think that they can find $17bn in individual high yield opportunities (e.g. corporate, EM sovereign) that have suddenly started screaming value, which would be great, but I just don't think the markets have moved that much.

Title: Re: Fairfax 2018
Post by: Dazel on February 08, 2018, 05:59:11 AM


I expect a bit of everything but you are correct 2 yr yields have doubled....
If you think in terms of every 100 basis points is $400m in income like Fairfax is thinking...it does not make sense to have long periods of holding cash unless things are really stupid....they were correct yields were really stupid...they are becoming normalized. All Fairfax needs to do is have normal returns on their investements.....they have set up the future with all of the insurance companies they bought and consolidated cheaply after the crisis. Its time to invest the money....rising rateswill create value quickly...you can see in their last two deals. Opportunity is here...
Title: Re: Fairfax 2018
Post by: Dazel on February 08, 2018, 06:15:58 AM


If they continue to follow Berkshire and Markel...they will do very very well over the next 10 years. As the brilliant Charlie Munger said “Warren and I figured out that we only had to do 10% and the magic of the float would give substantial returns over the long term”. Berkshire holds common stock for the long term because of their dividends...do you know what their yield is on Coca Cola!!
Wells Fargo for example  is similar to Fairfax other deals...it is yielding 2.7% and will yield 5% on purchases now over the next few years and maybe much more depending on what the shares do. If it were to fall great buy more and more and higher yields averaging cost and rising the yield on investments...it Is just math now for the majority of the investments...obviously India are greater risk reward....but the majority of the money should be Bradstreet’s and yields are the key...
Title: Re: Fairfax 2018
Post by: petec on February 08, 2018, 08:42:55 AM
Dazel I agree with everything you're saying except that markets have moved enough for them to invest 85% of their cash by the end of q1. The 30y yield is 18bps higher than its peak in October, when to the best of my knowledge they didn't do much. That's not the opportunity they are waiting for.

The 2 year has risen 60bps in the same time. That's a great place to park cash now. And I am sure they have found some individual values. But 85% invested - only if it's in the 2 year, IMHO. But there is no point arguing further - we'll get an update soon enough!
Title: Re: Fairfax 2018
Post by: gary17 on February 08, 2018, 12:35:03 PM
Thanks for all the posts
i certainly learned a lot
i had AWH shares before and have been tempted to buy  but can't 100% get comfortable with whether Prem has really learned from his mistakes...  and what they are thinking now...    looking forward to hearing from them again soon when the results are out and then see if it gets to a even better price to enter. 
Title: Re: Fairfax 2018
Post by: gary17 on February 08, 2018, 05:14:47 PM
does anyone know what is the following for FFH in $CAD/share? your guess for fairfax right now?
- float
- book value about $560
- net debt
? thanks
Title: Re: Fairfax 2018
Post by: gary17 on February 08, 2018, 08:10:31 PM
i think i found my answers -

anyway, i think the key question is if this thing can compound at 13% of book over the next 5 years... if it can and gets re-valued to 1.5x then that'll provide an attractive return....

Can rising interest rates cause a hard insurance market ? 
Title: Re: Fairfax 2018
Post by: Dazel on February 15, 2018, 05:38:49 PM

Some will recall.....record earnings.....just saying!
Title: Re: Fairfax 2018
Post by: Dazel on February 15, 2018, 06:00:01 PM

And...$20b cash...

Lucky I guess?
Title: Re: Fairfax 2018
Post by: gary17 on February 15, 2018, 06:45:05 PM
why do i feel they bought a lemon with the AWH purchase
Title: Re: Fairfax 2018
Post by: Dazel on February 16, 2018, 06:20:17 AM


Because it is a hell of lot easier to be negative...join the club!

If the crowd was not negative than the price would be much much higher and we would not even be having any conversation.
Title: Re: Fairfax 2018
Post by: StubbleJumper on February 16, 2018, 06:45:51 AM


Because it is a hell of lot easier to be negative...join the club!

If the crowd was not negative than the price would be much much higher and we would not even be having any conversation.



I'm not sure that it's a simple question of being negative.  The adverse development is definitely a concern.  Does it end in Q4 or do we see more in the future?  Was it caused by bad luck, or is it a symptom of bad underwriting (under pricing and poor adjustment practices)?  Is it something that fixes itself, or can FFH find somebody to go in and fix it?

Those are legitimate questions.  Allied might be a decent deal, but the first few quarters are harkening back to the massive reserve adjustments of TIG and C&F.  But, this time FFH doesn't have the SwissRe cover, right?  The good news is that TIG and C&F were long-tail which is where the worst adverse development tends to appear.  But, I'd say the jury is still out (this is true of all acquisitions -- it takes a bit of time to determine whether you bought a lemon or a turd).


SJ
Title: Re: Fairfax 2018
Post by: Txvestor on February 16, 2018, 09:30:06 AM


Because it is a hell of lot easier to be negative...join the club!

If the crowd was not negative than the price would be much much higher and we would not even be having any conversation.


Well said and absolutely true. I would be skeptical about anyone stating that they know AWH book
inside out 100%. Its not possible. The Cat losses were higher than at other fairfax insurance subsidiaries and Prem hinted at some modifications to underwriting. The part that concerns me is the
$50M adverse development from a claim(s) they took this Q. That is over and above the Cat losses.
Based on the worse than Fairfax Cat losses and this additional adverse development, if anyome can cleerly categorically why it would be wront to question AWH I would be interested. The jury is out as far as I am concerned. This is a sizable and dilutive acquisition mind you.
I think barring wacky investments by Prem(which he appears intent on tempering) and things going terribly wrong at AWH, the path to $2B a year in BV gains is not terribly difficult to envisage.
At 8% equity gains, an average 3.5-4% bonds return, and 95% CR on 15B in written premiums gets you there. And as Prem pointed out thats $70/share/yr. on that basis in the current market Fairfax should be a stock closer to $1000 than to $500, but to my mind the unknowns stand in the way, which is why it teades where it currently does. The good part is fixing that is within grasp.

I'm not sure that it's a simple question of being negative.  The adverse development is definitely a concern.  Does it end in Q4 or do we see more in the future?  Was it caused by bad luck, or is it a symptom of bad underwriting (under pricing and poor adjustment practices)?  Is it something that fixes itself, or can FFH find somebody to go in and fix it?

Those are legitimate questions.  Allied might be a decent deal, but the first few quarters are harkening back to the massive reserve adjustments of TIG and C&F.  But, this time FFH doesn't have the SwissRe cover, right?  The good news is that TIG and C&F were long-tail which is where the worst adverse development tends to appear.  But, I'd say the jury is still out (this is true of all acquisitions -- it takes a bit of time to determine whether you bought a lemon or a turd).


SJ
Title: Re: Fairfax 2018
Post by: racemize on February 16, 2018, 09:38:10 AM
On the call, they said that adverse development was from one casualty claim (it must have been a whopper).  Otherwise they are happy with underwriting and that standards are similar to FFH. 
Title: Re: Fairfax 2018
Post by: Dazel on February 17, 2018, 04:14:36 AM

The insurance business they have will create a Markel and Berkshire type outcome. But you get the shares now at the level where there is the doubt of that outcome. 
Title: Re: Fairfax 2018
Post by: Spekulatius on February 17, 2018, 03:59:21 PM

The insurance business they have will create a Markel and Berkshire type outcome. But you get the shares now at the level where there is the doubt of that outcome.
They need to generate consistent results for a few years to get rerated. There are quite a few insurers trading around book value and some have even decent results, and more consistent than FFH.

That said, I am an opportunistic buyer of FFH, but I don’t think, it deserves to trade much higher than it does right now.
Title: Re: Fairfax 2018
Post by: Dazel on February 28, 2018, 07:43:46 AM


This is a great environment to build value for Fairfax...volatility, rising rates will bring many corporate convertible opportunities and bond prices have dropped a fair amount. What an opportunity to keep buying shares as they have dropped on the open about 12 of the last 14 days (LOL). I have rethought the tender offer as I don’t think they would get the amount of shares they want tendered and it would drive the price up....This works out a lot better over the long term.

Looking forward to Prem’s annual letter....I would bet he will write about what he thinks of intrinsic value and why share buy backs make sense here. He should be clear with share holders on this in my opinion Longleaf talk about the Fairfax buyback plan in their letter it should be talked about in detail from Prem. Usually we would worry about Prem’s explanation driving up the price of the shares which would hinder the buy back...but I think we all could likely agree that NO one is listening right now.  Long term shareholders do deserve the heads up...as it looks like Mason Hawkins has gotten it.
Title: Re: Fairfax 2018
Post by: petec on February 28, 2018, 07:51:10 AM
Longleaf talk about the Fairfax buyback plan in their letter.

Which letter? I can't find this in the 4a17 one...

I think the buyback plan is a long term change of strategy (from issuing to acquire to buying back) rather than an imminent promise.
Title: Re: Fairfax 2018
Post by: Dazel on February 28, 2018, 08:18:21 AM


Longleaf letter quarter  3  I believe they refer to the fact the ICICI Lombard sale and the First Capital sale will greatly aid Fairfax’s  buy back plan.
Quarter 1 I believe they describe Fairfax how I see them...
Title: Re: Fairfax 2018
Post by: Dazel on February 28, 2018, 08:23:36 AM


I went to look and I see quarter 3 is not there...not sure how you get it. There was not a lot of detail just the fact that these large capital gains would give Fairfax the firepower for the buyback plan...despite the hurricane season that was going on.
Title: Re: Fairfax 2018
Post by: petec on February 28, 2018, 08:24:25 AM
OK, thanks. I read at least one of those...can't remember which!
Title: Re: Fairfax 2018
Post by: Dazel on February 28, 2018, 08:29:02 AM

I would have to assume Lonf Leaf is thinking the same way I am (no idea whether they have talked directly with Prem but they have historically ingaged with managements of the company’s they own very successfully I might add) about Fairfax. It’s cheap and the holding company has $2.4b in cash for buy backs and the earnings power is being hidden by the large cash position. These prices are excellent for long term holders that will benefit from buy backs.
Title: Re: Fairfax 2018
Post by: ourkid8 on February 28, 2018, 11:26:26 AM
Agreed and it took Teledyne 15 years...

"Our hero, Henry Singleton, whom I have mentioned before in our Annual Reports, built Teledyne by taking shares outstanding from seven million in 1960 to 88 million in 1972 and then down to 12 million in 1987 – an 87% drop in shares outstanding. Our long term focus is clear."



I think the buyback plan is a long term change of strategy (from issuing to acquire to buying back) rather than an imminent promise.
Title: Re: Fairfax 2018
Post by: StubbleJumper on February 28, 2018, 01:30:55 PM
On days like today when it traded below adjusted book, I think wistfully about the past when we were able to buy leaps on FFH shares.  I don't see how this doesn't trade for ~US$650 at some point in 2019.


SJ
Title: Re: Fairfax 2018
Post by: Dazel on February 28, 2018, 02:10:02 PM

I am kinda giddy with how things are going...on script.
Title: Re: Fairfax 2018
Post by: FairFacts on February 28, 2018, 02:45:32 PM
'scuse my Ignorance, why are there no Leaps or even options trading in Fairfax?
Title: Re: Fairfax 2018
Post by: globalfinancepartners on February 28, 2018, 03:42:56 PM
When Fairfax chose to delist from the NYSE the options and LEAPS on the NYSE shares went away.  As far as I know there have never been listed options on the TSX shares, so that was the end of that.  There may be some big guys that can get an investment bank to make them an option on FFH but most of us don't qualify for that kind of service

'scuse my Ignorance, why are there no Leaps or even options trading in Fairfax?
Title: Re: Fairfax 2018
Post by: StubbleJumper on February 28, 2018, 03:49:32 PM
When Fairfax chose to delist from the NYSE the options and LEAPS on the NYSE shares went away.  As far as I know there have never been listed options on the TSX shares, so that was the end of that.  There may be some big guys that can get an investment bank to make them an option on FFH but most of us don't qualify for that kind of service

'scuse my Ignorance, why are there no Leaps or even options trading in Fairfax?



Yep, about now it would be nice to buy a US$600 leap expiring in Jan 2020.
Title: Re: Fairfax 2018
Post by: Dazel on February 28, 2018, 04:17:17 PM
https://www.wsj.com/articles/indias-quarterly-gdp-increases-7-2-1519821904

http://money.cnn.com/2018/02/28/news/economy/india-economy-gdp-7-2-growth/index.html

Would it not be nice to intenched in India already? Fairfax will look very intelligent over the next few years.
Title: Re: Fairfax 2018
Post by: obtuse_investor on February 28, 2018, 07:19:32 PM
Agreed and it took Teledyne 15 years...

"Our hero, Henry Singleton, whom I have mentioned before in our Annual Reports, built Teledyne by taking shares outstanding from seven million in 1960 to 88 million in 1972 and then down to 12 million in 1987 – an 87% drop in shares outstanding. Our long term focus is clear."



I think the buyback plan is a long term change of strategy (from issuing to acquire to buying back) rather than an imminent promise.

Agreed- I like the talk about the long term buyback stance. I'd like to see it in action though.
Much like the persistent underwriting profit, it will take me a few years to believe that consistent buyback stance actually exists.

I just wish Prem would cut down on the marketing and boasting about the company in all his statements / appearances. I fully understand that one of the primary roles of a CEO is salesmanship, but if he really wants the buyback program to work in the long term, FFH needs to be selling at meaningful discount to intrinsic value. More discount the better.

He needs to take a few firm steps:

1) Reduce the analyst calls to just one a year, or maybe even zero.
2) Open the Annual meeting to shareholders only. If journalists / analysts wants to come, they should represent at least one share.

Title: Re: Fairfax 2018
Post by: obtuse_investor on February 28, 2018, 07:23:08 PM
Dazel: I have been lurking and reading your thoughts on FFH over the last year or so. I appreciate the enthusiasm and the research you have done. I happen to agree with almost all your have said.

If you don't mind sharing, what percentage of your liquid net worth is directly associated to FFH?

I'll offer mine: It is 19.0%
Title: Re: Fairfax 2018
Post by: petec on March 01, 2018, 01:17:41 AM
Agreed and it took Teledyne 15 years...


If they're going to reduce the share count by 87% I'll happily wait 15 years!
Title: Re: Fairfax 2018
Post by: petec on March 01, 2018, 01:18:19 AM
Dazel: I have been lurking and reading your thoughts on FFH over the last year or so. I appreciate the enthusiasm and the research you have done. I happen to agree with almost all your have said.

If you don't mind sharing, what percentage of your liquid net worth is directly associated to FFH?

I'll offer mine: It is 19.0%

13% and rising. For the family - higher for me personally.
Title: Re: Fairfax 2018
Post by: Dazel on March 01, 2018, 05:21:05 AM


Obtuse,

I have been warned in the past about getting personal on this board...but I will say it is a heavy position that will grow at these levels...pretty sure I mentioned it was my only equity holding about a month ago...

Dazel

Title: Re: Fairfax 2018
Post by: Dazel on March 01, 2018, 05:33:02 AM


For those holding the FFH shares...USD and the Euro have risen about 5% in FEb...I am not certain of Fairfax hedges but I believe they are unhedged other than most liabilities? All numbers and most importantly book value are stated in USD as we know...it is a trend to watch and another reason for Prem to be picking off FFH shares.
5% is a lot to Fairfax these days as it has become very large.
Title: Re: Fairfax 2018
Post by: StubbleJumper on March 01, 2018, 05:57:51 AM


For those holding the FFH shares...USD and the Euro have risen about 5% in FEb...I am not certain of Fairfax hedges but I believe they are unhedged other than most liabilities? All numbers and most importantly book value are stated in USD as we know...it is a trend to watch and another reason for Prem to be picking off FFH shares.
5% is a lot to Fairfax these days as it has become very large.


I don't recall seeing anything about meaningful currency hedging.  In principle, it shouldn't be required.  All of the subs have presumably matched off their assets against their liabilities in local currency, and each is regulated by a national regulator and must keep adequate capital for the specific country in which they operate.  The only thing where currency hedging might be helpful would be for the holdco to hedge enough to ensure that it can meet its interest and debt repayment obligations, as well as its annual dividend.  However, given that most of the interest and debt, and the common dividend are denominated in US dollars and FFH's largest subs are US based, one would think that they would have plenty of capacity to meet their US dollar obligations using dividends from their US subs. 

Other than that, currency hedging would serve the purpose of managing consolidated income?  I'd say that FFH has traditionally not worried much about income lumpiness, so managing EPS movements triggered by currency fluctuations doesn't seem like something that they'd do.


SJ
Title: Re: Fairfax 2018
Post by: Dazel on March 01, 2018, 06:56:41 AM


I know in the past they did not hedge in a meaningful way....it is possible they hedge on their European and Asian investments.  But apples to apples FFH should have had a 5% boost in Feb relative to book value because it is priced in CAD. This is short term stuff of course but like I said if it is trend then it should be paid attention too and a buy back at a 5% to 10% discount on the FFH shares added  to the discount I think is already there...well that is just smart business to buy more shares back until the market figures it out.
Title: Re: Fairfax 2018
Post by: StubbleJumper on March 01, 2018, 07:42:35 AM


I know in the past they did not hedge in a meaningful way....it is possible they hedge on their European and Asian investments.  But apples to apples FFH should have had a 5% boost in Feb relative to book value because it is priced in CAD. This is short term stuff of course but like I said if it is trend then it should be paid attention too and a buy back at a 5% to 10% discount on the FFH shares added  to the discount I think is already there...well that is just smart business to buy more shares back until the market figures it out.


In your mind you price FFH in Canadian dollars?  I mentally gravitate to the US dollar price because their financial reporting is all in US dollars and the only Canadian sub is NB, which is pretty small in the grand scheme of things.  If you think of FFH in US dollar terms, then the past month hasn't been so great because there are many small subs that report in non-US and non-Euro currencies which have generally not done well over the past month.


SJ
Title: Re: Fairfax 2018
Post by: Dazel on March 01, 2018, 08:38:21 AM


SJ,

The market may be reading these post for (f......k) sakes....reluctant to reply!
Fairfax is a USD company....my point is we are being priced and buying back in CAD which is FFH. So if Book Value remains constant...and CAD drops 5% then the FFH shares are 5% cheaper because in CAD they should be priced 5% higher....if it is just short term fluctauation which is possible no big deal because we will not buy enough shares back to be meaningful....but if it is a trend and CAD continues lower and the market does not price it in we get a 5% plus discount to the Book value which is priced in USD.
Title: Re: Fairfax 2018
Post by: Spekulatius on March 01, 2018, 03:50:25 PM
FFH is an US Business quoted in CAD for all practical purposes, IMO.
Title: Re: Fairfax 2018
Post by: StevieV on March 02, 2018, 07:28:58 AM
I joined you jokers by initiating a small position this morning.  Looking forward to some good returns, and continued interesting posts on this board.
Title: Re: Fairfax 2018
Post by: Dazel on March 05, 2018, 01:53:26 AM
http://xlcatlin.com/insurance/news/axa-to-acquire-xl-group


This transaction values XL at 1.5 times book value....XL has a $32b bond portfolio which would have dropped in value 2018...very little cash.

Under theses metrics with the unrealized value added into Fairfax book value...FFH would be trading for $870.

FFH
Bond exposure is limited (XL full earning power in play for interest income but unrealized losses this quarter from bond drop)
Massive cash position (XL has very little cash a little over $800m)
India growth exposure (XL investment portfolio is smaller and over 85% in fixed income)

This is why FFH best investment opportunity lies in share buy backs it’s cheap relative to its peers.
Title: Re: Fairfax 2018
Post by: petec on March 05, 2018, 04:50:36 AM

This transaction values XL at 1.5 times book value....

True, although the market clearly doesn't. AXA's market cap fell by about the market cap of XL when the deal was announced!
Title: Re: Fairfax 2018
Post by: rohitc99 on March 05, 2018, 05:36:49 AM
https://www.bseindia.com/corporates/anndet_new.aspx?newsid=0f84fd68-9a81-4d73-bdc5-7e1ec0a5e9bc

The Board of Directors (“Board”) of Thomas Cook (India) Limited (“Company”) at its meeting held today have  given  their  consent  to  the  management  to  explore  the  possibility  of  an  internal  corporate  restructuring exercise that would (i) enable the Company to focus on travel related business, (ii) give the shareholders direct exposure and shareholding in the business of Quess Corp Limited; and (iii) enhance the stakeholders’ value (“Proposed Restructuring”).   
Title: Re: Fairfax 2018
Post by: Dazel on March 05, 2018, 05:49:38 AM


Petec I think AXA shareholders and those following the stock were expecting a one time dividend from the sale of their U.S operations....they will not only not get this dividend now they are using the proceeds of the IPO and leverage for the purchase to make it a cash deal.

Title: Re: Fairfax 2018
Post by: Dazel on March 05, 2018, 06:09:46 AM


Fairfax reorg of Thomas Cook and it’s position in the company makes sense as Fairfax India is now their investment vehicle for new investment. The market likes the decision...Thomas Cook shares are up sharply...
Title: Re: Fairfax 2018
Post by: wondering on March 06, 2018, 08:33:35 AM
presumably a small investment

https://privatecapitaljournal.com/fairfax-torstar-backed-blue-ant-media-acquires-australian-geographic-magazine/

Title: Re: Fairfax 2018
Post by: Dazel on March 06, 2018, 06:06:53 PM

Looks like Fairfax has a approx $850m pretax gain in Thomas Cook India...not bad for a group that has lost their touch. LOL
Title: Re: Fairfax 2018
Post by: rohitc99 on March 06, 2018, 07:19:16 PM

Looks like Fairfax has a approx $850m pretax gain in Thomas Cook India...not bad for a group that has lost their touch. LOL

https://timesofindia.indiatimes.com/business/india-business/thomas-cook-to-sell-5-42-in-quess-corp-to-raise-rs-600-crore/articleshow/61754756.cms.

Thomas cook recently sold around 5.5% of quess and booked a gain of close to 100 Mn on the sale. The company plans to use it to pay down debt at the thomas cook level.

Thomas cook in itself is an interesting company operating on float via the forex and travel business. Except for recent quarters, it has run the travel and forex business on close to zero capital due to this float. as it grows, this float should allow it to make further accquisitions
Title: Re: Fairfax 2018
Post by: Dazel on March 10, 2018, 06:38:56 AM


The letter was Pure Class.
Watch out Fairfax is back!

Cheers,

Dazel
Title: Re: Fairfax 2018
Post by: petec on March 11, 2018, 10:57:57 AM


The letter was Pure Class.
Watch out Fairfax is back!

Cheers,

Dazel

+1

Very impressive.
Title: Re: Fairfax 2018
Post by: Dazel on March 14, 2018, 07:19:40 AM
http://www.business-standard.com/article/companies/thomas-cook-to-spin-off-quess-within-a-year-to-simplify-business-structure-118031301063_1.html


The stock price continues to rise as does FFH unrealized (not in book value) gain. I would expect Prem to discuss this at the annual meeting...they will have realized (if Thomas Cook is de consolidated  and sold)....almost $3b after tax gains from consolidated companies in a little over a year without losing any cash flow at all. Impressive!
Title: Re: Fairfax 2018
Post by: petec on March 14, 2018, 09:01:40 AM
http://www.business-standard.com/article/companies/thomas-cook-to-spin-off-quess-within-a-year-to-simplify-business-structure-118031301063_1.html


The stock price continues to rise as does FFH unrealized (not in book value) gain. I would expect Prem to discuss this at the annual meeting...they will have realized (if Thomas Cook is de consolidated  and sold)....almost $3b after tax gains from consolidated companies in a little over a year without losing any cash flow at all. Impressive!

Is there any evidence that they will sell it? I see this as a move to simplify and make the value obvious, but I don't see why they'd sell. It's a good business with a huge growth runway and they've been doing a lot of tuck-ins. I think this is a long term holding. Might be wrong.
Title: Re: Fairfax 2018
Post by: ourkid8 on March 14, 2018, 09:55:29 AM
http://www.seaspancorp.com/press-release-post/press-release-122843/  (A second round of $250m investment by Fairfax to be funded next January on the same terms as first debenture/warrant deal)

If we exercise all the warrants @ $6.50 on the 5th anniversary, Fairfax has a potential ownership in SSW of 44.8% and we will be enjoying a coupon of $27.5M a year waiting... I love it!     
Title: Re: Fairfax 2018
Post by: petec on March 14, 2018, 11:45:56 AM
Yes - extraordinary - and cheap!
Title: Re: Fairfax 2018
Post by: dartmonkey on March 14, 2018, 02:42:15 PM
http://www.seaspancorp.com/press-release-post/press-release-122843/  (A second round of $250m investment by Fairfax to be funded next January on the same terms as first debenture/warrant deal)

If we exercise all the warrants @ $6.50 on the 5th anniversary, Fairfax has a potential ownership in SSW of 44.8% and we will be enjoying a coupon of $27.5M a year waiting... I love it!   


Interesting that this is another deal with David Sokol, of Berkshire renown. "Prem Watsa, Chairman and Chief Executive Officer of Fairfax, said:

"We are delighted to grow our partnership with the Seaspan team. Building an even greater relationship with a company guided by proven leaders like David Sokol and Bing Chen, ..."

And this, in the 2017 AR:

 "In addition to our restaurant businesses, our investment in the Davos craft spirit brands, in partnership with our good friend David Sokol and the management team led by Andrew Chrisomalis, continues to do exceptionally well. Davos’ brands include TYKU Sake, Aviation American Gin, Sombra Mezcal and Astral Tequila. Davos recently partnered with Ryan Reynolds (star of the blockbuster movie Deadpool) in Aviation American Gin."

and this:

"Late in 2017, we had the good fortune to be a partner with David Sokol and Dennis Washington, two outstanding businessmen with great track records, by investing in Seaspan. Dennis is the largest shareholder of Seaspan while David became its Executive Chairman in July 2017. David has one of the most outstanding records I have come across, as he built Mid American Energy from revenue of $116 million in 1991 to revenue of $11 billion in 2010, while net income increased from $27 million to $1.2 billion over the same period, representing a compound growth rate of 22.4% per year."

Sokol, as many will remember, had a falling out with Buffett and Berkshire when he pitched a deal for the takeover of Lubrizol, without making it clear that he had taken a small stake already.


Title: Re: Fairfax 2018
Post by: ourkid8 on March 17, 2018, 11:00:43 AM
Fairfax has deployed a bit over $1B in debt/warrant deals so far in the last year. I was wondering are they using float or cash at the Holdco for these deals?  If it is using float and we average a CRs of 100, there is no further built in leverage, correct?  Or is the leverage derived from the differential between government rates and CR written?  Sorry for these noob questions, I am trying to better understand the company and cash deployment opportunities.
Title: Re: Fairfax 2018
Post by: petec on March 18, 2018, 12:49:52 AM
Fairfax has deployed a bit over $1B in debt/warrant deals so far in the last year. I was wondering are they using float or cash at the Holdco for these deals?  If it is using float and we average a CRs of 100, there is no further built in leverage, correct?  Or is the leverage derived from the differential between government rates and CR written?  Sorry for these noob questions, I am trying to better understand the company and cash deployment opportunities.

They are using float. The holdco cash is probably going to be used to buy the OMERS stakes in Brit and Eurolife when those agreements come due. But I wouldn't necessarily differentiate between float and holdco cash. The point is that float levers your equity - you get to keep the investment returns on a far greater amount of money that what you invested in the business. Here's how I understand it:

The leverage is derived from the fact that when you sell an insurance contract, the buyer effectively lends you money (premiums come in now, claims go out later, and you get to sit on the money in the meantime).

The cost of the leverage is derived from the CR.

The amount of the leverage is derived from the value of the premiums you write and the duration of the contracts.

So for example, if you write $1bn in premiums every year on contracts that expire after a year (e.g. a typical house insurance contract) you'll have about $1bn in float, because you get to sit on one year's worth of premiums before the claims go out the door. If your CR is 100, then that leverage is cost free. Bit if you write $1bn in premiums every year on contracts that expire after 10 years, then (once the business is mature) you'll have about $10bn in float, because you get to sit on 10 years' worth of premiums. If the CR is 98%, then you're being paid to borrow that money. Of course, long tail is riskier than short tail - you can't predict the exposures so well and something you didn't foresee, like asbestos causing cancer, can come back to bite you - so you have to be very careful with underwriting.

So, let's say you have $1bn in equity and you write $1bn in premiums every year on 3 year contracts. You'd have $4bn in investable assets ($1bn equity and $3bn float).

If you can underwrite at 102% you're going to lose 2% of premiums a year in underwriting profit: $20m.

If you can invest $4bn in a 7-year Seaspan debenture at 5.5% you're going to earn $220m in interest for a total of $200m in annual income, before holdco costs and tax.

If you've also got warrants exercising at $6.50, and the Seaspan share price goes to $13, then towards the end of the debenture you're going to exercise the warrants for $8bn(!!), paying by forgiving the debenture. Not a bad return on your $1bn of equity. That's the impact of levering equity upside using float.

A few points to note:

- I have oversimplified the relationship between contract duration and float, but I think the basic principle holds.

- Fairfax currently lever their equity about 2:1 using float, not 3:1. But they could probably double premiums in a hard insurance market. If you double premiums across the board it would take time for float to double, but logically you'd get there if the hard market lasted long enough. Unfortunately I suspect the regulator or the ratings agencies would panic long before they got to 4:1 levered, but there's scope for some growth.

- underwriting profit in any given year  is calculated off the $ of premiums, not float. That said, you can look at the float and know, if the average CR over all those contracts is 98%, that you're getting paid 2% to borrow.

- float gives you huge investing leverage whether or not the CR is over 100% - it's just that the cost of that leverage is lower with a lower CR. That's why this model is so powerful for compounding if you can get both underwriting and investing right.

- the debenture + warrant deals are great in theory because the downside is bondlike, so the regulator looks at these as bonds, but in most cases the warrant strike price is quite close to the share price at inception, and the shares look reasonably cheap, so there is near-full equity upside. That's powerful, if they can do it with a significant proportion of that big bond portfolio. If they can do $1bn a year on 5-7 year terms then they can basically convert $5-7bn of that bond portfolio into securities that have bond downside but equity upside. That more or less doubles their equity exposure but only on the upside. Get that right and lever it with float and the impact on shareholder's equity could be spectacular.

I hope this helps but sorry if I am teaching grandma to suck eggs.

Title: Re: Fairfax 2018
Post by: StevieV on March 18, 2018, 05:29:39 AM
Fairfax has deployed a bit over $1B in debt/warrant deals so far in the last year. I was wondering are they using float or cash at the Holdco for these deals?  If it is using float and we average a CRs of 100, there is no further built in leverage, correct?  Or is the leverage derived from the differential between government rates and CR written?  Sorry for these noob questions, I am trying to better understand the company and cash deployment opportunities.

They are using float. The holdco cash is probably going to be used to buy the OMERS stakes in Brit and Eurolife when those agreements come due. But I wouldn't necessarily differentiate between float and holdco cash. The point is that float levers your equity - you get to keep the investment returns on a far greater amount of money that what you invested in the business. Here's how I understand it:

The leverage is derived from the fact that when you sell an insurance contract, the buyer effectively lends you money (premiums come in now, claims go out later, and you get to sit on the money in the meantime).

The cost of the leverage is derived from the CR.

The amount of the leverage is derived from the value of the premiums you write and the duration of the contracts.

So for example, if you write $1bn in premiums every year on contracts that expire after a year (e.g. a typical house insurance contract) you'll have about $1bn in float, because you get to sit on one year's worth of premiums before the claims go out the door. If your CR is 100, then that leverage is cost free. Bit if you write $1bn in premiums every year on contracts that expire after 10 years, then (once the business is mature) you'll have about $10bn in float, because you get to sit on 10 years' worth of premiums. If the CR is 98%, then you're being paid to borrow that money. Of course, long tail is riskier than short tail - you can't predict the exposures so well and something you didn't foresee, like asbestos causing cancer, can come back to bite you - so you have to be very careful with underwriting.

So, let's say you have $1bn in equity and you write $1bn in premiums every year on 3 year contracts. You'd have $4bn in investable assets ($1bn equity and $3bn float).

If you can underwrite at 102% you're going to lose 2% of premiums a year in underwriting profit: $20m.

If you can invest $4bn in a 7-year Seaspan debenture at 5.5% you're going to earn $220m in interest for a total of $200m in annual income, before holdco costs and tax.

If you've also got warrants exercising at $6.50, and the Seaspan share price goes to $13, then towards the end of the debenture you're going to exercise the warrants for $8bn(!!), paying by forgiving the debenture. Not a bad return on your $1bn of equity. That's the impact of levering equity upside using float.

A few points to note:

- I have oversimplified the relationship between contract duration and float, but I think the basic principle holds.

- Fairfax currently lever their equity about 2:1 using float, not 3:1. But they could probably double premiums in a hard insurance market. If you double premiums across the board it would take time for float to double, but logically you'd get there if the hard market lasted long enough. Unfortunately I suspect the regulator or the ratings agencies would panic long before they got to 4:1 levered, but there's scope for some growth.

- underwriting profit in any given year  is calculated off the $ of premiums, not float. That said, you can look at the float and know, if the average CR over all those contracts is 98%, that you're getting paid 2% to borrow.

- float gives you huge investing leverage whether or not the CR is over 100% - it's just that the cost of that leverage is lower with a lower CR. That's why this model is so powerful for compounding if you can get both underwriting and investing right.

- the debenture + warrant deals are great in theory because the downside is bondlike, so the regulator looks at these as bonds, but in most cases the warrant strike price is quite close to the share price at inception, and the shares look reasonably cheap, so there is near-full equity upside. That's powerful, if they can do it with a significant proportion of that big bond portfolio. If they can do $1bn a year on 5-7 year terms then they can basically convert $5-7bn of that bond portfolio into securities that have bond downside but equity upside. That more or less doubles their equity exposure but only on the upside. Get that right and lever it with float and the impact on shareholder's equity could be spectacular.

I hope this helps but sorry if I am teaching grandma to suck eggs.

petec,

My only quibble is that I don't believe it is as easy to increase the leverage as your post may imply.  They need to find profitable insurance to write (100% or less CR) or acquire.

If Fairfax does increase book value by 15% (straight book value, not per share), it seems to me as though it will be a challenge to maintain the current leverage.  If they grow 15%/share/year, and some of that is through share buybacks, that should be a little less difficult.  That is one of the reasons why I like opportunistic buybacks. It helps alleviate some size/growth problems.

I think I have that right.  Any reason you think maintaining the leverage won't be an issue?

StevieV
Title: Re: Fairfax 2018
Post by: Cigarbutt on March 18, 2018, 06:43:14 AM
The big multi-variable equation question about Fairfax capacity to grow profitably is one I am wrestling with.
Historically, FFH has shown an incredible capacity to grow float and more recently to grow it profitably.
Isolating the residual room to grow variable going forward, here's an excerpt from Berkshire Hathaway 2017 edition:

Here’s the record:
(in $ millions)
Volume Float
1970 39     1980 237     1990 1,632     2000 27,871     2010 65,832     2017 114,500

Fairfax year-end float (2017): 22,700

If you go back in time for Berkshire Hathaway, in 1998, year-end float was 22,800
Question:
From the perspective of 1998, did BH have an opportunity to grow float?
Float has grown at 8.9% (CAGR).

FFH is not BH but even if the rate of potential growth in float has come down, IMO, the variable, in itself, is not a major limiting factor in terms of the return objective that they describe going forward.
And indeed, opportunistic buybacks, given the right environment, could help with float per share.
Title: Re: Fairfax 2018
Post by: petec on March 18, 2018, 09:57:24 AM

My only quibble is that I don't believe it is as easy to increase the leverage as your post may imply.  They need to find profitable insurance to write (100% or less CR) or acquire.

If Fairfax does increase book value by 15% (straight book value, not per share), it seems to me as though it will be a challenge to maintain the current leverage.  If they grow 15%/share/year, and some of that is through share buybacks, that should be a little less difficult.  That is one of the reasons why I like opportunistic buybacks. It helps alleviate some size/growth problems.

I think I have that right.  Any reason you think maintaining the leverage won't be an issue?

StevieV

Hi StevieV.

My post was just an explanation of the theory in response to a question about the pref/warrant deals. I didn't actually meant to imply that leverage would grow. But it's a good question.

First, there's every reason to believe that premiums will grow in line with nominal GDP or faster and therefore float ought to do the same. If you don't believe that then you must believe either that insurance premiums will shrink as a % of GDP or that Fairfax will lose share. Yet insurance is materially under-indexed in developing parts of the world so it is likely to grow faster than GDP globally - and Fairfax will capture more of that than many north American insurers because it does a material amount of business in those developing areas. Also, my base case would be that well run, disciplined underwriters might take share over time because they'll have equity when others are struggling. Fairfax has a good history of finding niches and growing in them, and I won't be surprised if Fairfax take share in places where existing business is small (LatAm, Eastern Europe) and in India, where Digit is a startup and could grow very fast.

Second, we know they can write a LOT more premiums in a hard market - possibly as much as double. That obviously doesn't double float immediately, but it does grow it.

Third, we know they will buy the stubs of Brit, Eurolife, and AWH. That will add to float. And while big acquisitions may be off the table, I fully expect continued tuck-ins.

In the long run that may not be enough to maintain leverage - Fairfax's mix may shift towards operating buisnesses - but that hasn't been too bad for Berkshire!

Title: Re: Fairfax 2018
Post by: petec on March 18, 2018, 10:02:07 AM
The big multi-variable equation question about Fairfax capacity to grow profitably is one I am wrestling with.
Historically, FFH has shown an incredible capacity to grow float and more recently to grow it profitably.
Isolating the residual room to grow variable going forward, here's an excerpt from Berkshire Hathaway 2017 edition:

Here’s the record:
(in $ millions)
Volume Float
1970 39     1980 237     1990 1,632     2000 27,871     2010 65,832     2017 114,500

Fairfax year-end float (2017): 22,700

If you go back in time for Berkshire Hathaway, in 1998, year-end float was 22,800
Question:
From the perspective of 1998, did BH have an opportunity to grow float?
Float has grown at 8.9% (CAGR).

FFH is not BH but even if the rate of potential growth in float has come down, IMO, the variable, in itself, is not a major limiting factor in terms of the return objective that they describe going forward.
And indeed, opportunistic buybacks, given the right environment, could help with float per share.

+1 Ultimately I think good, motivated underwriters can grow float by spotting opportunities less capable people don't. Berkshire is one of the best underwriters around - and Fairfax, thee days, is also superb.
Title: Re: Fairfax 2018
Post by: StevieV on March 18, 2018, 11:20:53 AM
Thanks petec and Cigarbutt.  Those are very helpful thoughts about the insurance float.

I would also expect changes to the investment leverage to be gradual (though perhaps lumpy).  Meaning, Fairfax isn't going to go from 2x leverage to 1.5 or 3x leverage overnight.  That would play out over a number of years.  On the lumpiness side, it could go into a decline until a harder market, and then reverse.
Title: Re: Fairfax 2018
Post by: Cigarbutt on March 18, 2018, 12:52:42 PM
Speaking of lumpiness. the uncertainty of future returns for Fairfax revolves a lot around investment returns.
Comments by petec and StevieV triggered the following.
Hat tip to Brooklyn Investor (note 22/11/17) vs the concept of matching invested assets and insurance reserves.
https://brooklyninvestor.blogspot.ca/

My numbers are not audited and may not be perfectly exact; exercise done for conceptual reasons.

So for Fairfax, in 1998 (all numbers in billion, expressed in CAD $), float was 8,15, cash was 1,15 and bonds at cost were 9,86.
Ratio of (cash + bonds)/float=1,35
Fast forward to 2017 (USD $), float is 22,7, cash is 18,5 and bonds at cost are 8,76, for a ratio of 1,20
Conclusion for FFH: cash is king (now).

The real reason for this post is the following:
For BH, in 1998, float as estimated by Brooklyn Investor was 26,3, cash was 13,58 and bonds were 21,25, for a ratio of 1,32.
For BH, in 2017, float as estimated by Brooklyn Investor is about 120, cash is 103,98 and bonds are 21,35, for a ratio of 1,04
For BH, float has been multiplied by about 5, bonds have remained the same and cash has been multiplied by 8.
Mr. Buffett is said to hate cash. What then, are his feelings about bonds now?

Fairfax' profile in terms of the composition of float coverage is comparable, to some degree, to Berkshire Hathaway and IMO that may not be a bad thing.


Title: Re: Fairfax 2018
Post by: Dazel on March 22, 2018, 08:13:07 AM


The credit markets are getting strained...3 month Libor is now 2.26%! This is the kind of market that Fairfax wants to deal in....would expect deal flow to get larger...its likely that Bradstreet will stuff the portfolio full of higher yielding corporates...this is what Fairfax has waited for. There will not be a calamity but in a leveraged finance world there will be forced liquidation’s which happened 1994 which is where I think we are (a flat stock market year becoming a stock pickers market but credit markets become wild)..the tide is heading out in the credit markets...many are now scrambling for their suits. Cash is king.
Title: Re: Fairfax 2018
Post by: Dazel on March 22, 2018, 08:18:22 AM

Hosington is right...long term US treasuries yields  will fall...but all other interest rates will rise substantially....flat yield curve for treasuries.

Any better way to play it than Fairfax...other than having cash to buy high yielding debt? Fairfax gets the magic of the float so they have an advantage on that strategy.
Title: Re: Fairfax 2018
Post by: Dazel on March 22, 2018, 08:44:16 AM


3 month Libor has been up 32 days in row.
Title: Re: Fairfax 2018
Post by: StubbleJumper on March 22, 2018, 10:19:14 AM
Let's just hope that they are making maximum use of the normal course issuer bid while the stock price is still bouncing around BV.
Title: Re: Fairfax 2018
Post by: ourkid8 on March 22, 2018, 01:17:00 PM
https://finance.yahoo.com/news/fairfax-announces-pricing-offering-senior-200820172.html

Fairfax is issuing 600 million euro debt with a coupon of 2.75% per year and due 2028.  This is extremely cheap euro denominated debt and looks to be used to refinance higher yielding debt. 

"Fairfax intends to use the net proceeds from this offering to refinance or repay outstanding debt or other corporate obligations of Fairfax and its subsidiaries and for general corporate purposes. This may include the redemption or repurchase of certain of Fairfax’s previously issued senior unsecured notes. "
Title: Re: Fairfax 2018
Post by: petec on March 22, 2018, 02:29:38 PM
Its likely that Bradstreet will stuff the portfolio full of higher yielding corporates...this is what Fairfax has waited for.

Why would he buy corporates when spreads are still near all time lows? Or am I wrong?

I would think he might be pulling the trigger on 2y treasuries at 2.3% with little duration risk. But I don't think you're getting paid for risk in HY corps yet. This isn't what Fairfax has been waiting for - yet.
Title: Re: Fairfax 2018
Post by: petec on March 22, 2018, 02:37:49 PM
https://finance.yahoo.com/news/fairfax-announces-pricing-offering-senior-200820172.html

Fairfax is issuing 600 million euro debt with a coupon of 2.75% per year and due 2028.  This is extremely cheap euro denominated debt and looks to be used to refinance higher yielding debt. 

"Fairfax intends to use the net proceeds from this offering to refinance or repay outstanding debt or other corporate obligations of Fairfax and its subsidiaries and for general corporate purposes. This may include the redemption or repurchase of certain of Fairfax’s previously issued senior unsecured notes. "

Good spot. They seem to be refinancing quite a bit at the moment although I haven't calculated the impact. These bonds actually yield 3% as they were issued below par but still, I'll take it!
Title: Re: Fairfax 2018
Post by: Dazel on March 23, 2018, 09:40:11 AM


Petec,

I just told you that 3 month USD Libor is 2.26%....it depends who you are and where you are what type of spread you get see Seaspan etc. Money is tightening as is liquidity hence the U.S and European banks are all down around 10% plus this week. No one has really discussed libor going straight up because they don’t want to...tight money means rolling over debt will become harder and commercial paper programs will have significantly higher costs.That’s why to buy the “right” corporates hopefully with warrants if the opportunity presents its self.  Fairfax-Bradstreet has made a lot of money on corporates in the past....by having tons of cash and liquidity when it was needed. This is turning into one of those times.

As for Fairfax euro offering...awesome move...and it becomes a natural hedge for Greek investments.
Title: Re: Fairfax 2018
Post by: Dazel on March 23, 2018, 12:27:51 PM


Petec,

Hope I did not come across the wrong way...in summary this is the type of market that The Fairfax investment team does very well in....volatility and value are coming back into vogue. Cash is king and they are loaded with it....I think the credit markets are a lot tighter than people think...and Bradstreet is the bond king. Interest rates in treasuries do not matter in times of panic...will we get more I am not sure but it feels like the season has changed.
Title: Re: Fairfax 2018
Post by: petec on March 23, 2018, 12:37:49 PM
Dazel

I may have misinterpreted the comment I was replying to. I thought you meant Bradstreet would be hoovering up corporate bonds in the market right now. I'll be surprised if that is true - corporate spreads are still tight and ultimately it is only when they widen that you get disproportionate opportunity in corporates.

However, if you're saying that as conditions tighten specific opportunities will present themselves for Fairfax, then I agree entirely.

Ultimately I suppose what I am saying is that while a dislocation might be starting, it is only starting. Fairfax didn't spend the last 10 years worrying in order to get sucked in at the first hint of trouble. They are extraordinarily well positioned and they will be patient and wait for fat pitches.

P
Title: Re: Fairfax 2018
Post by: FairFacts on March 23, 2018, 04:15:53 PM
good conversation going on here......a few things come to mind.....

Jeremy Seigel on CNBC yesterday worried about the Fed Forecasting a fund rate of 3.6% by 2020 when the current 10 year is at 2.8% - 'ever since the 2nd WW an inverted curve has presaged a recession.

Bill Gross weighed in yesterday saying he sees a 10year at about 3% for 2018 AND he doesn't see the fed going beyond 2 increases. He says that the US and global economies are too leveraged and won't stand a fed funds rate above 2% in a 2% inflationary world.

In Dec'17 Oxford University (UK) raised STG750k (about $1bil) at 2.54% on a 100 year bond!

Fairfax is refinancing existing debt at 200-300 bps lower than the existing rates.

They say the bond market (10x bigger than the stock market) is a far better signal of what is actaully going on in the economy.

SOOOOO.....I think lower for longer is here to stay for longer......

How does this affect the FFH thesis?



Title: Re: Fairfax 2018
Post by: Cigarbutt on March 23, 2018, 08:36:36 PM
-So Oxford issues a century bond with a higher credit rating than the UK government.
-The Libor is moving up more than government bond yields.
-Investment grade spreads move up less than risk-free bonds and high yields barely notice.
-The curve is flattening as the death of long term bonds may have been exaggerated.
-The conundrum that Mr. Greenspan alluded to in 2005 is still looking for an explanation.

Opinion: not a bad time for Fairfax to have some dry powder.
There is definitely room to grow for the corporate credit spread.
Title: Re: Fairfax 2018
Post by: Dazel on March 24, 2018, 04:19:57 PM


Lower long term interest rates only happen if there is a pot hole hit...have we hit one now?

If we hit a pot hole corporate spreads blow out...longer term treasury yields fall...the opportunity is in a spreads blow out and refinancing problems with the massive global debt load reaching maturity.

When the 30 year treasury hit 2.5% in 2008....Bradstreet sold most of Fairfax long term treasuries at a huge profit and bought I believe $5b in Berkshire guaranteed tax free Muni’s yielding 7%. Maybe the bond trade of the century...
This will not happen again obviously but when the credit market tightens- freezes...opportunities come quickly to those with ready cash. Libor’s rise is causing funding problems so who knows what the credit market will serve up Fairfax! 2.3% in  3 month money is a pretty good start.

If rates continue to ride higher the opposite of a blow up Fairfax wins as well....

My bet is a rise that gets high enough to cause a credit event...where Fairfax buys both corporates at great prices and higher yielding treasuries at good yields...brings a nice yield to the portfolio for many years and adds billions in capital gains....as rates come back down.
Title: Re: Fairfax 2018
Post by: Dazel on March 25, 2018, 05:18:08 AM


Having said that...the best investment Fairfax can make right now...is in their shares. Hoping they are actively looking for block share purchases from those want to get out of the AWH buyout and those that need to raise cash. If we stay here in price or drop below these levels for awhile it will be very beneficial to get a boat load of stock purchases. I have not seen Fairfax this cheap since 2003 at that time they were unable to take advantage of the price with big buy backs. Excited.
Title: Re: Fairfax 2018
Post by: ourkid8 on March 26, 2018, 05:37:16 AM
https://www.bloomberg.com/news/articles/2018-03-26/berkshire-hathaway-says-knauf-made-offer-for-usg-at-42-a-share

Fairfax can sell their position in USG for a nice little gain...

Title: Re: Fairfax 2018
Post by: Txvestor on March 26, 2018, 05:54:50 AM
I believe they sold down most of that converted equity stake in 2012 at around $20. They more recently picked up a smaller $60M position in the low $30s area but their irigibal stake was much larger.
Title: Re: Fairfax 2018
Post by: ourkid8 on March 26, 2018, 06:06:08 AM
Yes, they picked up a small position on Q4 2016 /Q1 2017 for ~$30 /share so they can exit the position with a nice gain. 

I believe they sold down most of that converted equity stake in 2012 at around $20. They more recently picked up a smaller $60M position in the low $30s area but their irigibal stake was much larger.
Title: Re: Fairfax 2018
Post by: petec on March 26, 2018, 09:01:59 AM
SOOOOO.....I think lower for longer is here to stay for longer......

How does this affect the FFH thesis?

Depends what you mean by lower for longer. If you mean rates won't go back to historical norms you're probably right - there's too much debt and the world could not survive it. Amazing to think that the 2y was at 6.5% in 2000. Those days are gone, and all else equal that must slow Fairfax's rate of compounding because earning 6.5%, levered by float and with no credit or duration risk, is a very nice way to make money.

However, current rates still provide a very nice tailwind of 2.25% on near-cash (2y treasury) while they wait for better opportunities. That tailwind has not been present for a decade.

Those better opportunities will either come along one by one as they did last year or, as Dazel says, if rates or spreads spike then a lot will come at once. Either scenario is positive for Fairfax.
Title: Re: Fairfax 2018
Post by: Cigarbutt on March 26, 2018, 10:39:40 AM
Given the underwriting and investment landscape, potential to reinvest in FFH is reconsidered.

In the past, I’ve occasionally backed up the truck with FFH and even if my conclusion is no (not now anyways), the post is respectfully submitted as Fairfax has been a major factor leading to financial independence.

-Underwriting side opportunity

Have reviewed a lot of end of year reports including from Lloyd’s just recently. What Lloyd’s reports is typical of the global environment:

-2017 was a tough year for catastrophes, CR at 114%.
-A hard market (except for some “exposed” areas) is simply not happening.
-The market is still characterized by a very unusual amount of capacity and “alternative” capital.
-At this point, even slight increases in price result in major loss of market share.
-Underlying combined ratios (with cat losses removed), in general, show relatively weak underlying trends, with Lloyd’s underlying CR at 98,4%.
-Except for 2017, catastrophes have been quite benign for quite some time.

AM Best recently released some preliminary 2017 data for the P/C industry as a whole.

-The industry’s combined ratio for the year came in at 103.8, a three-point deterioration versus what it was in 2016. The 103.8 ratio was the worst of the last five years.
-A.M. Best estimates that the catastrophe losses account for 10.0 points on the P/C industry’s combined ratio, up from an estimated 4.9 catastrophe points in the prior year.

IMO FFH is not immune to the environment (unusually soft and benign) but is relatively well positioned (underwriting culture/discipline, reserve profile, capitalization at the subs level and +/- overall financial flexibility) to thrive in this market AND to profitably grow global float going forward. This is a risk business but IMO the underwriting posture is WAY better than it has been when I invested before in FFH.

Transition note to the next topic:

Before writing this, went back to the “Time to buy Fairfax again?” thread started in 2014. A lot of discussion on the “premium” to book value (what is book value anyways for FFH?). IMO, best to buy low but the value of long term profitable growth in float warrants a significant premium. I would suggest that, for an insurer like Fairfax, if you can define a profitable path going forward, it may be reasonable to buy at a multiple of normalized earning power.

Next topic: Investing side opportunity (fixed income side)

No comment here about the equity exposure and this may be eventually discussed separately.

Agree that this has been a stellar component. But I’m scratching my head at this point.

Have recently spent a considerable time looking at the bond market and here are some facts/opinions.

Potential bias: I don’t like it. Will use top and bottom examples.

-Corporate debt as a % of EV looks relatively OK but corporate debt as a % of BV or GDP looks very high, in the sense of cyclically high.

-The fraction of BBB bonds over all investment-grade bonds has been rising:
   -1990’s: +/- 25%
   -2009: 32%
   -now: about 50%

-Now, the face value of BBB bonds is larger than all BB bonds (unusual and suggests the possibility that some BBBs belong in the BBs?). To be fallen angels?

-CVS (context of buying Aetna) recently (in a pre-emptive fashion) issued a government-sized BBB offering that offered what I consider to be very limited margin of safety spreads and the issue was met by yield-hungry investors with a bid to cover ratio of 2,7. CVS may eventually realize the transformational aspect of the transaction. I just find that the risk reward is not favorable to the bond investor.

-Who knows about junk bonds but a lot of stuff will continue to mature, possibly in a rising short term rate environment?

-Recently looked at Revlon and found that investors in the high yield area may be looking at increasing spreads on top of being exposed to evolving “holes” in the covenants as it has been suggested that the majority investor may consider "pulling a J. Crew" on Revlon.

-Even if volume of issuance of high yield bonds is decreasing, the segment has been taken over by leveraged loans in a very interesting way. These are very popular these days, are typically used to finance mergers, acquisitions and buybacks, typically have floating yields tied to LIBOR and are expected to do well in a rising rate environment. These loans are felt to be safe and secured but, because of the size it now occupies in the fixed income space (vs capital structure), because of the very real decline in covenant quality and because many are packaged into CLOs, the structure of this segment has changed (the risk profile has changed). These specific CLOs have historically done well before under many circumstances and many still get a AAA rating but the underlying securities are non-investment grade securities which, IMO, may behave in a more correlated way, given recent circumstances that now drive this market.

Bottom line: I find that, for some time and even more recently, fixed income investors have accommodated less creditworthy companies with lower spreads and this will be recognized somehow.

So, potential opportunity for the cash deployment at Fairfax into expected larger credit spreads?

To answer the previous question about FFH’s ability to grow intrinsic value for a significant amount of time and the relevance of paying a premium or not, important to identify potential opportunities where FFH could benefit AND TO UNDERSTAND the rationale/analytical framework behind the investment decisions.

The investment stance that FFH has defined has been that they have switched to the offense and expect interest rates to increase and the global economy to grow because of the USA-led locomotive. This scenario and investment mindset would however go along a maintenance and even an elevation of present trends in the fixed income market. What gives?

I’m still uncomfortable with the sudden and IMO incompletely explained change in investment stance. After reading last year’s BH annual report, I can clearly define the fundamental principles behind investment decisions. In my limited mind, for FFH, this is no longer the case.

Respectfully submitted, this investment rationale uncertainty combined with the tone of the last annual report pointing to perhaps a transition in the composition and functioning of the investment team prevents me from investing in Fairfax now.

FFH may do very well and that’s great but I will jump in the train only if I understand where the train is going.


Title: Re: Fairfax 2018
Post by: petec on March 26, 2018, 12:50:33 PM
Cigarbutt

Very interesting post and one I agree with to a very great degree.

Where I differ is on the interpretation of Fairfax's investment moves.

First, hedges. We can debate the hedges ad nauseam but I've come to the conclusion that they simply decided the cost - financially but I suspect also to the morale of the investment team working below those who were making the macro calls - was too great. Trump provided a catalyst and an excuse. Like that or loathe it, that was the right call: 2017 would have been a horrible year with the index hedges (they still lost $400m on the individual ones!). Plenty on here have voiced outrage at the bet taken, the sizing, the explanations, etc. I take the view that it is a lesson learned, and what matters is that the hedges are gone and are not coming back and that makes it much easier to see into the future.

Second, "playing offence" - sorry but as a Brit I need to spell it properly ;). I have actually come to the conclusion over time that Prem is not good at communicating to the market and this is a prime example. Sitting in cash, which is what they have done, is not playing offence, and that phrase should never have been used. They have been clear about the risks that they still see, but with a pro-business government in the US driving global GDP they may not come to pass soon and hedging them is too costly. That doesn't mean they are bullish on equities or bonds - in fact they've been explicit that they don't necessarily expect equity indices to do well, and you can tell that they agree with you on corporate bonds by looking at how many they own (not many). What they do expect is for individual opportunities to arise ("stockpicker's market"), and cash on hand is helpful when opportunities appear.

I also differ on needing to know where the train is going before hopping on. What I need to know is that there is a high probability of a decent destination, a low probability of an awful one, and a ticket price that doesn't reflect those probabilities. I think that's where we are here.

Supporting my view of a high probability of a decent destination are all the things that have gone right over Fairfax's history. The hedges tend to cloud over everything at the moment but when you look at the history of compounding, the transformation of the underwriting, the ability to build businesses from scratch, the acquisitions of amazing insurers (Zenith etc.), the phenomenal performance in India, and the extent to which Fairfax seems to have become a talent magnet, I tend to think more good things will happen than bad.


Title: Re: Fairfax 2018
Post by: Cigarbutt on March 26, 2018, 01:22:53 PM
Thanks for the solid rebuttle. :)

As far as the spelling…no offence.

For the record (3 years of Latin leaves an imprint) the root of the word is offensus and the initial meaning had an unpleasant connotation. Playing offence is seen as a potential positive nowadays but was seen more as an insult in times past particularly in places where social decorum had precedence over human qualities. ;)

BTW, my unconscious mind wants to be convinced that FFH is a good investment.
Keep it coming.
Title: Re: Fairfax 2018
Post by: petec on March 26, 2018, 01:25:28 PM

For the record (3 years of Latin leaves an imprint) the root of the word is offensus


Actually I think quite a lot of American (and I assume Canadian?) English is closer to old English than English English is (if you see what I mean). But I couldn't resist the dig.
Title: Re: Fairfax 2018
Post by: petec on March 26, 2018, 01:30:01 PM
And by the way I am not trying to persuade you. Each to their own. But when someone posts a logical anti-thesis I feel I need to test my ideas against it to see if they stand up. Always a useful exercise.
Title: Re: Fairfax 2018
Post by: petec on March 26, 2018, 01:34:51 PM
my unconscious mind wants to be convinced that FFH is a good investment.

Out of interest, why? Emotional attachment, or because your subconscious actually thinks this is a good option?
Title: Re: Fairfax 2018
Post by: petec on March 26, 2018, 01:37:44 PM
One other thing I would add is I think capital has been flooding into the insurance markets for the same reason it has been flooding into the bond markets: a desperate hunt for yield. It's therefore possible that rising rates will do FFH a lot of good on the bond side and on the underwriting side.
Title: Re: Fairfax 2018
Post by: Cigarbutt on March 26, 2018, 01:52:34 PM
With investments, like to see my role as an analyst (not a psychoanalyst). :)
Basically the same process as you: I build a case and check my case against potential negative outcomes and, more recently, other points of view.
See this maybe like a hurdle that needs to be reached before the trigger is released.
Didn't mean to transfer any responsibility on you.

Also, with Fairfax, as well described in the previous thread alluded to above, there is a need to evaluate the "seer" component and that is the hardest thing.

FWIW I also think that one has to consider the possibility that the next hard market may be triggered by the left-hand side of the balance sheet.
I seem to remember Mr. Watsa saying something to that effect.
Title: Re: Fairfax 2018
Post by: petec on March 26, 2018, 02:03:03 PM
With investments, like to see my role as an analyst (not a psychoanalyst). :)


Point taken, but for me there is a link. I have learned (largely!) to be able to tell when I want to buy something for the right reasons (deep value, differentiated understanding) vs the wrong reasons (I've done a lot of work, I like the idea of the company, etc.)

I can't explain it well but it just feels different and it's quite consistent which feelings have worked well, and haven't, in the past. That's why in your shoes I'd be interrogating that subconscious of mine to understand why it wanted a particular analytical outcome!

Still the question was idle interest and we are wandering off topic...
Title: Re: Fairfax 2018
Post by: Dazel on March 27, 2018, 07:53:49 AM


Anyone else watching Thomas Cook India stock? It’s 280...Fairfax cost is 59...it’s a home run on $250m investment.... not in book value as its consolidated.

Buy Fairfax shares Prem Back buy them all...when the crowd realizes Fairfax earnings potential and intrinsic value the buy back program will not be accretive and shares should not be pursued in volume over 1.5x book. The market is helping us out right now!

Title: Re: Fairfax 2018
Post by: petec on March 27, 2018, 08:50:09 AM

Anyone else watching Thomas Cook India stock? It’s 280...Fairfax cost is 59...it’s a home run on $250m investment.... not in book value as its consolidated.


Yes - it's been superb. What I am interested to see is what happens after the Quess spin. Someone who met FFH recently says they think Thomas Cook itself is very undervalued, so there may be more to come. and I wonder if they plan to reduce Quess once the holding is at the Fairfax level given the headline valuation. But that is pure speculation - I don't know Quess well and if it can keep growing at the historic rate the valuation isn't so eye-watering.
Title: Re: Fairfax 2018
Post by: Dazel on March 27, 2018, 08:53:29 AM

Thank you to all for their execellent input into this thread. Wonderful thinking and intellectual discussions. I admit Fairfax is not for everyone...it has been a bumpy road!

Want to clarify a few things will be away for awhile...I am a terrible writer so I will do it in point form!

-first and foremost the insurance operations are the key to the value of Fairfax..they most perform.

-bond and equity prices as whole are not cheap...but that does not mean that Bradstreet will not continue to trounce the index which values bond prices as a whole. Secondly, as we can see from Thomas Cook India share price (look at their recent chart)...not every one cares about Trump and the trade war retoric! There are pockets of value for value guys to out perform...and Fairfax is decade ahead in India where everyone is headed.

-when Fairfax says offence they are talking about the economies of the world not the stock markets...ie if India continues to grow at 7% a year Fairfax will make a killing. The Dow doesn’t matter.

-your either trust Prem and Fairfax management or you don’t pretty easy...if you don’t you should NOT buy shares

-I see large consistent buybacks up until $700 on FFH....after that they will slow substantially

-Volatility brings opportunity to those that are prepared...Fairfax is playing offence but they are doing so with a great Defense as well (lots of cash)...would have helped a lot in the first quarter with bond and equity prices dropping.

Value investors have been killed for years...Prem and Fairfax have not escaped this fate and many are right to doubt their recent stock picking performance. That is rear view mirror stuff but Fairfax has to prove themselves AGAIN for sure. Thomas Cook India is a good start.
Title: Re: Fairfax 2018
Post by: Crip1 on March 27, 2018, 10:45:26 AM
Want to clarify a few things will be away for awhile...I am a terrible writer so I will do it in point form!Please do…it drives me crazy when someone wants to make multiple points in paragraph form. Points make it easier on the reader.

 -when Fairfax says offence they are talking about the economies of the world not the stock markets...ie if India continues to grow at 7% a year Fairfax will make a killing. The Dow doesn’t matter.
– Compels one to ponder whether Fairfax or Faifax India is the better investment.
  -your either trust Prem and Fairfax management or you don’t pretty easy...if you don’t you should NOT buy shares – I would add something to the effect of “if you don’t feel Prem is a good steward for your money, then you should NOT buy shares.
  -I see large consistent buybacks up until $700 on FFH....after that they will slow substantially. I think that once the news comes out that FFH is buying back shares that the price will spike making the buybacks less beneficial. Stated differently, I hope they’re buying a boatload now.
  Value investors have been killed for years...Prem and Fairfax have not escaped this fate and many are right to doubt their recent stock picking performance. That is rear view mirror stuff but Fairfax has to prove themselves AGAIN for sure. Thomas Cook India is a good start. After years of under-performance, I would hope that value-type investments over-perform in the coming years. The flipside of this is that over-performing against relatively benign overall market returns suggests absolute returns will not be great.

-Crip
Title: Re: Fairfax 2018
Post by: StubbleJumper on March 27, 2018, 10:47:56 AM


Anyone else watching Thomas Cook India stock? It’s 280...Fairfax cost is 59...it’s a home run on $250m investment.... not in book value as its consolidated.

Buy Fairfax shares Prem Back buy them all...when the crowd realizes Fairfax earnings potential and intrinsic value the buy back program will not be accretive and shares should not be pursued in volume over 1.5x book. The market is helping us out right now!


Sure, it's great that ffh is demonstrating it's intrinsic value through transactions like the Keg and Thomas Cook.  But, that's really about value built 3, 4, 5 years ago that is getting crystallized.  Great, but we all knew that value had been built, so the question is, "What have you done for me lately?'

There will be something of a quality of earnings challenge for investors in the next little while as the numbers will be juiced with no real value being immediately built.  We need to maintain focus on quality earnings, notably those drive by a 95 CR and predicable higher returns for bonds.  The CR and the bond returns reflect operational performance of the recent period, not some fluffy accounting revaluation of an existing asset.

It is, nonetheless, gratifying to see assets revalued and a hidden gain unlocked.


SJ
Title: Re: Fairfax 2018
Post by: ourkid8 on March 27, 2018, 12:00:29 PM
Unfortunately they are not, the pace of buybacks in 2018 has been extremely slow. Now that I think about it, I have a strong suspicion they must be under negotiations with OMERS to start buying back their stake in Eurolife or potentially Brit.  It's the only logical explanation for the extremely slow share repurchases. 

Subsequent to December 31, 2017 and up to March 9, 2018 the company repurchased for cancellation 20,000 subordinate voting shares under the terms of its normal course issuer bid at a cost of $9.9.

https://s1.q4cdn.com/579586326/files/doc_financials/2017/annual/WEBSITE_Fairfax-FINANCIAL-FULL-Annual-Report-v3.pdf


  -I see large consistent buybacks up until $700 on FFH....after that they will slow substantially. I think that once the news comes out that FFH is buying back shares that the price will spike making the buybacks less beneficial. Stated differently, I hope they’re buying a boatload now.
-Crip
Title: Re: Fairfax 2018
Post by: petec on March 27, 2018, 02:06:26 PM
Great, but we all knew that value had been built, so the question is, "What have you done for me lately?'

I'm not sure most people realised *quite* how much value had been built! Most people were too busy getting their knickers in a twist about the hedges to notice what was happening on the other side of the world in FC and Lombard.

As for what have you done for me lately:
a) bought 44% of Seaspan at 5x earnings just as it exits a capex cycle springs to mind.
b) the market will always pay a premium for predictable, or at least visible, gains. I prefer paying book value for companies that have a history of doing smart, but unpredictable things. Plenty of the investments here could do very well over the next 1-5 years and plenty more will be made.
Title: Re: Fairfax 2018
Post by: petec on March 27, 2018, 02:11:49 PM
Unfortunately they are not, the pace of buybacks in 2018 has been extremely slow. Now that I think about it, I have a strong suspicion they must be under negotiations with OMERS to start buying back their stake in Eurolife or potentially Brit.  It's the only logical explanation for the extremely slow share repurchases. 

Subsequent to December 31, 2017 and up to March 9, 2018 the company repurchased for cancellation 20,000 subordinate voting shares under the terms of its normal course issuer bid at a cost of $9.9.

https://s1.q4cdn.com/579586326/files/doc_financials/2017/annual/WEBSITE_Fairfax-FINANCIAL-FULL-Annual-Report-v3.pdf


  -I see large consistent buybacks up until $700 on FFH....after that they will slow substantially. I think that once the news comes out that FFH is buying back shares that the price will spike making the buybacks less beneficial. Stated differently, I hope they’re buying a boatload now.
-Crip

+1

You can hope all you like but I fear the big buyback ain't comin'. The cash is earmarked for buying the stubs of Brit (FFH have the option to buy OMERS' 29.9% from 2018 and the ticket will be over $500m) and Eurolife.
Title: Re: Fairfax 2018
Post by: StubbleJumper on March 27, 2018, 05:50:18 PM
Great, but we all knew that value had been built, so the question is, "What have you done for me lately?'

I'm not sure most people realised *quite* how much value had been built! Most people were too busy getting their knickers in a twist about the hedges to notice what was happening on the other side of the world in FC and Lombard.

As for what have you done for me lately:
a) bought 44% of Seaspan at 5x earnings just as it exits a capex cycle springs to mind.
b) the market will always pay a premium for predictable, or at least visible, gains. I prefer paying book value for companies that have a history of doing smart, but unpredictable things. Plenty of the investments here could do very well over the next 1-5 years and plenty more will be made.

Well Pete, that was the point.  You make your money when you buy, not when you sell.  Crystallizing gains feels nice, but we should rather spend our time and attention focussed on what is currently being done to build value.  I certainly don't question that good deals are being made that are improving IV, and seaspan is just one of those deals.  More importantly, the insurance operations and investments seem to be aligning nicely for improved operating earnings.  Those are the things that are being done lately that are actually creating value.


sj
Title: Re: Fairfax 2018
Post by: ourkid8 on March 28, 2018, 12:07:41 PM
Crip1/Dazel, does this change your views on Fairfax as both of you were expecting large share repurchases.  I personally think this is a net positive consolidating their positions in Brit (Andy Bernard needs to perform his magic to bring down the CR) and Eurolife (P&C Combined ratio less than 70% so they are kicking ass) to make them Fairfax subsidiaries. 

Unfortunately they are not, the pace of buybacks in 2018 has been extremely slow. Now that I think about it, I have a strong suspicion they must be under negotiations with OMERS to start buying back their stake in Eurolife or potentially Brit.  It's the only logical explanation for the extremely slow share repurchases. 

Subsequent to December 31, 2017 and up to March 9, 2018 the company repurchased for cancellation 20,000 subordinate voting shares under the terms of its normal course issuer bid at a cost of $9.9.

https://s1.q4cdn.com/579586326/files/doc_financials/2017/annual/WEBSITE_Fairfax-FINANCIAL-FULL-Annual-Report-v3.pdf


  -I see large consistent buybacks up until $700 on FFH....after that they will slow substantially. I think that once the news comes out that FFH is buying back shares that the price will spike making the buybacks less beneficial. Stated differently, I hope they’re buying a boatload now.
-Crip

+1

You can hope all you like but I fear the big buyback ain't comin'. The cash is earmarked for buying the stubs of Brit (FFH have the option to buy OMERS' 29.9% from 2018 and the ticket will be over $500m) and Eurolife.
Title: Re: Fairfax 2018
Post by: Cigarbutt on March 28, 2018, 01:16:48 PM
The underlying question has to do with the flexibility in using cash. Nice problem.
I am not aware of the exact nature and timing of the options that Fairfax has in terms of buying back the rest of Brit and Eurolife.
From FFH's perspective, this is certainly an option to consider or negotiate.

Looking back, when cash was high in 2008, they bought back shares (1,07 million) around book value before privatizing Northbridge and OdysseyRe, but this was said to be done as an offset to the shares issued on conversion of debentures earlier in 2008 (0,9 million).

In 2009, NB was privatized contemporary to a corresponding Crum & Forster dividend and, later in the year, ORH was privatized in parallel to a share issue (2,9 million shares), in order to "maintain a strong financial position" at around book value (of course book value was quite higher then and maybe reflected better intrinsic value).

So now, extra cash is available and so are options. If Brit were trading on public markets, I would be a buyer at the right price with an expectation that FFH offers a reasonable premium for full consolidation (maybe that's already phrased in the contract with Brit).

In terms of "excess" cash, potential opportunities or absence thereof and the credit market, here's a link offering some perspective:
http://fpafunds.com/docs/special-commentaries/fpa-new-income-special-commentary_mar-2018.pdf?sfvrsn=2

Like the FPA people suggest, I would stay away from corporate bonds and attribute some of the dry powder to FFH share buybacks and/or subs full consolidation.
Buybacks can be great. Mr. Singleton's record at Teledyne comes to mind. But some like Circuit City, from 2003 to 2007, did not do so well.
A buyback (especially if significant) needs to take into account the present price vs value AND future circumstances.
Opinion: I would spread the buybacks over time and focus on flexibilty in order to catch the inevitable hard market that will eventually come.

Title: Re: Fairfax 2018
Post by: petec on March 29, 2018, 02:30:04 AM
Great, but we all knew that value had been built, so the question is, "What have you done for me lately?'

I'm not sure most people realised *quite* how much value had been built! Most people were too busy getting their knickers in a twist about the hedges to notice what was happening on the other side of the world in FC and Lombard.

As for what have you done for me lately:
a) bought 44% of Seaspan at 5x earnings just as it exits a capex cycle springs to mind.
b) the market will always pay a premium for predictable, or at least visible, gains. I prefer paying book value for companies that have a history of doing smart, but unpredictable things. Plenty of the investments here could do very well over the next 1-5 years and plenty more will be made.

Well Pete, that was the point.  You make your money when you buy, not when you sell.  Crystallizing gains feels nice, but we should rather spend our time and attention focussed on what is currently being done to build value.  I certainly don't question that good deals are being made that are improving IV, and seaspan is just one of those deals.  More importantly, the insurance operations and investments seem to be aligning nicely for improved operating earnings.  Those are the things that are being done lately that are actually creating value.


sj

Oops - I thought you were suggesting that they hadn't done anything lately. We are on the same page.
Title: Re: Fairfax 2018
Post by: petec on March 29, 2018, 02:49:15 AM
I am not aware of the exact nature and timing of the options that Fairfax has in terms of buying back the rest of Brit and Eurolife.

I don't know the exact terms but it's something like this: Brit was bought in 2015 and OMERS got 29.9% of it. Brit doesn't have to pay a dividend but if it does OMERS gets preference up to an annual hurdle. From 3 years onwards FFH have the option to buy the OMERS stub for cost plus an annual hurdle rate. I think the hurdle rate is 7-8% and I assume any dividend paid counts towards it. (Clearly depending on how book value performs relative to the hurdle rate, the total P/BV paid for Brit will change.)

I believe AWH works on a similar system so I assume Eurolife does too.

Anyway the point is that the Brit option goes live in 2018, Eurolife probably in 2019, and AWH probably in 2020, and I expect all 3 to be exercised.
Title: Re: Fairfax 2018
Post by: Cigarbutt on March 29, 2018, 05:21:57 AM
Appreciate the feedback.

Just to add some details (from AR 2017):

"On August 3, 2016 Brit purchased shares for cancellation from its minority shareholder Ontario Municipal Employees Retirement System (‘‘OMERS’’) for cash consideration of $57.8, which increased the company’s ownership interest in Brit from 70.1% to 72.5%. On March 3, 2017 Brit paid a dividend of $45.8 to OMERS."

With your description and the above quote, I would tend to say that it is quite reasonable to assume that Brit may be 100% owned this year.
The total price tag should be +/- 650 million. (no special insight here, just applying a simple rule of three with adjustments (NCI, GW+INT, 2017 results). It is possible that OMERS required to be bought out in steps.

Also, statutory dividend capacity at Brit stands at 195,1 million. If considered needed (FFH has done this before), the price tag could be decreased (just shuffling $ around) by an upstream dividend to the parent. I assume that Brit's NPW are not growing and that may be an option.
Title: Re: Fairfax 2018
Post by: ourkid8 on March 29, 2018, 06:01:49 AM
Great news however I would like them to use the balance to refinance/repay other outstanding high yielding debt instead of being used for general corporate purposes.

Fairfax intends to use C$298.4 million of the net proceeds from the offering to redeem in full the C$267.3 million outstanding principal amount of Fairfax’s 7.25% senior notes due June 22, 2020 plus accrued and unpaid interest thereon and the applicable premium (the “2020 Notes”), and to use the balance to refinance or repay other outstanding debt or other corporate obligations of Fairfax and its subsidiaries and for general corporate purposes.

https://www.fairfax.ca/news/press-releases/press-release-details/2018/Fairfax-Completes-600-Million-Senior-Notes-Offering/default.aspx

https://finance.yahoo.com/news/fairfax-announces-pricing-offering-senior-200820172.html

Fairfax is issuing 600 million euro debt with a coupon of 2.75% per year and due 2028.  This is extremely cheap euro denominated debt and looks to be used to refinance higher yielding debt. 

"Fairfax intends to use the net proceeds from this offering to refinance or repay outstanding debt or other corporate obligations of Fairfax and its subsidiaries and for general corporate purposes. This may include the redemption or repurchase of certain of Fairfax’s previously issued senior unsecured notes. "
Title: Re: Fairfax 2018
Post by: petec on March 29, 2018, 06:26:29 AM
Appreciate the feedback.

Just to add some details (from AR 2017):

"On August 3, 2016 Brit purchased shares for cancellation from its minority shareholder Ontario Municipal Employees Retirement System (‘‘OMERS’’) for cash consideration of $57.8, which increased the company’s ownership interest in Brit from 70.1% to 72.5%. On March 3, 2017 Brit paid a dividend of $45.8 to OMERS."

With your description and the above quote, I would tend to say that it is quite reasonable to assume that Brit may be 100% owned this year.
The total price tag should be +/- 650 million. (no special insight here, just applying a simple rule of three with adjustments (NCI, GW+INT, 2017 results). It is possible that OMERS required to be bought out in steps.

Also, statutory dividend capacity at Brit stands at 195,1 million. If considered needed (FFH has done this before), the price tag could be decreased (just shuffling $ around) by an upstream dividend to the parent. I assume that Brit's NPW are not growing and that may be an option.

I get to 600m using $1.88bn * 27.5% * 1.08^3 - $46m

$1.88 * 27.5% is OMERS' cost for remaining shares

1.08^3 is 8% annual hurdle for 3 years since deal

$46m is the dividend paid in 2017 (there may have been more in 2016/8).

I'm nowhere near 100% sure on the methodology but we are in the same ballpark.
 
Agreed re dividend.
Title: Re: Fairfax 2018
Post by: Dazel on March 29, 2018, 10:09:28 AM

Ok I have a second...no time to answer questions.

Here is what I would do....Eurolife is not strategic to me they bought it because Eurobank had to sell it and they paid a fair price..and Eurolife has knocked it out of the park! FFH should sell their stake that trades at a PE of about 3 on their cost...they could get a PE of 9 at least I would try for 12...This would be a 4 bagger for FFH add about a billion pretax gain....
Take the proceeds and buy back Brit and as much AWH...as they can because they shit the bed last year and they will get a decent price. I would also look at selling the other consolidated holdings that are smaller that they can ge5 premiums for because they do not create enough cash flow for the time they take...the cash sales are better used for FFH buybacks...they are big enough with BrIt and AWH...

Use the cash on hand is for buy backs and other opportunities....
Title: Re: Fairfax 2018
Post by: Dazel on March 29, 2018, 10:19:52 AM


Actually if was Prem i would just swap assets with CPP...Eurolife is more the kind of asset that they would rather hold...steady. They would not have the disaster risk of BrIt and AWH....hint premium for Eurolife!

Title: Re: Fairfax 2018
Post by: StubbleJumper on March 29, 2018, 10:25:32 AM

Ok I have a second...no time to answer questions.

Here is what I would do....Eurolife is not strategic to me they bought it because Eurobank had to sell it and they paid a fair price..and Eurolife has knocked it out of the park! FFH should sell their stake that trades at a PE of about 3 on their cost...they could get a PE of 9 at least I would try for 12...This would be a 4 bagger for FFH add about a billion pretax gain....
Take the proceeds and buy back Brit and as much AWH...as they can because they shit the bed last year and they will get a decent price. I would also look at selling the other consolidated holdings that are smaller that they can ge5 premiums for because they do not create enough cash flow for the time they take...the cash sales are better used for FFH buybacks...they are big enough with BrIt and AWH...

Use the cash on hand is for buy backs and other opportunities....


If eurolife trades at 3pe, to whom would ffh sell it at 12?  It's possible that ffh might ultimately obtain 12 pe in 4 or 5 years, but my take is that a multiple like that is not on in the near future.

The cash decision is what it is.  I have offered an (unpopular) opinion that the buybacks will not be meaningful in the Teledyne sense because Prem is a serial acquirer.  The cash will disappear for (hopefully) acquisitions that improve IV.  At this stage, I just hope to Christ that Prem is hemming and hawing a fair bit when he sees ffh's own shares trading at a discounted of 20 or 30 percent to fair value.  Buying back the minority interests in allied and brit might be nice, but it's not clear to me at this point that it's a superior use of cash than buybacks.

Time will tell.


SJ
Title: Re: Fairfax 2018
Post by: petec on March 29, 2018, 11:50:58 AM
Dazel: Eurolife is an exceptional asset (as you seem to have realised in your second post) and they bought it for nothing. It would be crazy to sell it - I imagine there would be a big tax hit and the economy is on the verge of reflation.

Also, the won't get a better price on Brit or AWH due to last year's cats. As I explained at length in my earlier posts, the price they pay to OMERS is based on OMERS' cost plus a hurdle, not on the current book value of the subsidiary. They don't have to exercise the option, but if they do that's the price they will pay. If anything the one they will get a great deal on is Eurolife, if the deal structure is the same. And they don't have the option to buy AWH until 2020 I don't think.

SJ: Eurolife does not trade on 3x. Dazel is saying it trades on 3x at FFH's cost, but I am not sure where he got that from because Eurolife is not listed (last I checked it was 40/40/20 FFH/OMERS/Eurobank). What I do know is that Eurolife was loaded with Greek government bonds when they bought it which promptly went up a lot so it has been an absolute home run.

I don't really understand the obsession with buybacks here. Sure the price is nice but the stock isn't liquid enough to do anything meaningful, and they have other good uses for the cash buying in minorities. They've clearly communicated that they will use the cash to buy in the minorities and that they will buy back with free cash flow over time, which is what the liquidity of the stock will bear.
Title: Re: Fairfax 2018
Post by: ourkid8 on March 29, 2018, 12:36:54 PM
Why would they swap assets with Canadian Pension Plan? I assume that's who you are referring to.  Do you mean with OMERS who has a 40% equity position in Eurolife?   Fairfax got Eurolife for an amazing price and the business continues to kick-ass. (Please see the thread below)  What I would like to see is a consolidation of their numerous insurance companies under the Fairfax umbrella and Andy should be able to significantly take costs out of the system.  That would create significant value however I do not see Prem agreeing to do so due to their fair and friendly culture he continues to talk about. 

http://www.cornerofberkshireandfairfax.ca/forum/fairfax-financial/fairfax-to-acquire-80-interest-in-eurolife/

Actually if was Prem i would just swap assets with CPP...Eurolife is more the kind of asset that they would rather hold...steady. They would not have the disaster risk of BrIt and AWH....hint premium for Eurolife!
Title: Re: Fairfax 2018
Post by: chrispy on March 29, 2018, 12:42:16 PM
I have learned a lot from reading all of these great posts. Thank  you.

Prem mentioned in this year's letter that while they sold First Capital, none of the other businesses we're for sale. Assuming that applies to Eurolife.
Title: Re: Fairfax 2018
Post by: petec on March 29, 2018, 12:49:07 PM
Why would they swap assets with Canadian Pension Plan? I assume that's who you are referring to.  Do you mean with OMERS who has a 40% equity position in Eurolife?   Fairfax got Eurolife for an amazing price and the business continues to kick-ass. (Please see the thread below)  What I would like to see is a consolidation of their numerous insurance companies under the Fairfax umbrella and Andy should be able to significantly take costs out of the system.  That would create significant value however I do not see Prem agreeing to do so due to their fair and friendly culture he continues to talk about. 

That would be a gigantic error. They have a lot of talented people beyond Andy Barnard and the reason they stay is because they can run their own businesses under Fairfax’s decentralised system. Centralise, and not only do you lose them all but you send a signal that no-one who wants to keep building their business should ever sell to them again. Plus, the insurance business are not a homogenous mass that can be run together. They’re a massively diverse group of niches that need focussed management. Fairfax and Andy Barnard’s influence is already felt across the group - for example in the changes they plan to make regarding cat tolerance at AWH. He couldn’t do a lot more, but the downside would be enormous.
Title: Re: Fairfax 2018
Post by: Dazel on March 29, 2018, 01:36:22 PM

Yes Omers! Thanks that’s what happens when you rush!


Petec...I know the numbers...don’t have to be public to count.
 
Pg 60 annual report
Cost $298 share of profit $117m that’s a price earnings multiple of 2.54!!!! They own 43.3% of Eurolife...

Agreed swap and sale is a bad idea.

Why buy back shares? Because the investment in associates are undervalued by at least $2b because they are being carried at cost. (Eurolife and Thomas Cooke alone are $2b)The insurance businesses are not being valued and everyone thinks Prem is a washed up bum who is stealing the company for his family.

That’s why! It’s a 40% discount!! Buyout the haters...enough already....before the stock appreciates to where it should be.
Title: Re: Fairfax 2018
Post by: petec on March 29, 2018, 01:45:31 PM

Yes Omers! Thanks that’s what happens when you rush!


Petec...I know the numbers...don’t have to be public to count.
 
Pg 60 annual report
Cost $298 share of profit $117m that’s a price earnings multiple of 2.54!!!! They own 43.3% of Eurolife...

Agreed swap and sale is a bad idea.

Why buy back shares? Because the investment in associates are undervalued by at least $2b because they are being carried at cost. (Eurolife and Thomas Cooke alone are $2b)The insurance businesses are not being valued and everyone thinks Prem is a washed up bum who is stealing the company for his family.

That’s why! It’s a 40% discount!! Buyout the haters...enough already....before the stock appreciates to where it should be.

That Eurolife profit includes the Greek bond gains I think - not likely a sustainable rate nor one you’d put 9-12x on, but wonderful nonetheless!

I understand the valuation argument. It just seems to me there’s a danger of getting excited about a big buyback because we want it to happen rather than because the company shows any signs of doing it-which they don’t.
Title: Re: Fairfax 2018
Post by: Dazel on March 29, 2018, 02:59:04 PM


Bond gains make sense for Eurolife....they are not going to sell it so valuation only matters on whether they acquire the other 37% from OMERS...book value will continue to be understated as with Thomas Cook India.

Buy backs makes sense I will be disappointed if Prem does no take advantage of steady buybacks under $700 as I have said...their buy backs so far in 2018  are sadly inadequate and downright depressing. Hopefully they have taken advantage of this latest blip (volumes are up but I do not see any block trades)if it continues at the pace it was at in early March we all should be pissed off!
Title: Re: Fairfax 2018
Post by: petec on March 29, 2018, 11:06:38 PM
Bond gains make sense for Eurolife....they are not going to sell it so valuation only matters on whether they acquire the other 37% from OMERS...book value will continue to be understated as with Thomas Cook India.

Agreed.

Buy backs makes sense I will be disappointed if Prem does no take advantage of steady buybacks under $700 as I have said...their buy backs so far in 2018  are sadly inadequate and downright depressing. Hopefully they have taken advantage of this latest blip (volumes are up but I do not see any block trades)if it continues at the pace it was at in early March we all should be pissed off!

I'm fairly sanguine. I agree they make sense. But given that they make sense, and given that FFH are clearly thinking about them, if they are not doing them yet then they clearly have what they think is a better use for the cash. That works for me.       

Also, incidentally, if you're looking for a rerating then a sustained buyback with FCF is better than cheap one-offs. The market, in its madness, does love consistency.
Title: Re: Fairfax 2018
Post by: chrispy on March 30, 2018, 04:08:02 AM
Petec, is that a similar concept to how one time dividends have minor effects on share price compared to consistent/consistently increasing dividends?
Title: Re: Fairfax 2018
Post by: Dazel on March 30, 2018, 06:48:53 AM

As I have said here...My thesis on a “one off” in a tender offer was because I did not think we would be undervalued as long as we have been! I changed that view Mr. market has decided to ignore FFH and I am fine with that as long as we are as you say “steadily” buying back shares at these undervalued valuation levels.
While we know the investment in associates are vastly undervalued...they do not come through in the debt to capital levels...they are lower than they look. Speaking of upgrades with the liquidity profile As I have said before I am expecting a debt ratings upgrade which may be reason for the buybacks being limited at this time. The very successful European bond offering is evidence of the financial strength of FFH.  An upgrade is very material to not only bringing debt servicing costs down, allowing for optilnality for financing, as an insurance company profile it is very beneficial.
Title: Re: Fairfax 2018
Post by: netnet on March 30, 2018, 10:26:49 AM

Yes Omers! Thanks that’s what happens when you rush!


Petec...I know the numbers...don’t have to be public to count.
 
Pg 60 annual report
Cost $298 share of profit $117m that’s a price earnings multiple of 2.54!!!! They own 43.3% of Eurolife...

Agreed swap and sale is a bad idea.

Why buy back shares? Because the investment in associates are undervalued by at least $2b because they are being carried at cost. (Eurolife and Thomas Cooke alone are $2b)The insurance businesses are not being valued and everyone thinks Prem is a washed up bum who is stealing the company for his family.

That’s why! It’s a 40% discount!! Buyout the haters...enough already....before the stock appreciates to where it should be.

Dazel,

Back of the envelope, but it seems you are saying that Fairfax is selling below book adjusted for sub intraparty price(not to mention fair market value). Yes?
Title: Re: Fairfax 2018
Post by: Spekulatius on March 31, 2018, 05:24:48 AM
Got my Proxy and voted for all Directors but Benjamin Watsa. I hope more people do the same , so they at least get the message.
Title: Re: Fairfax 2018
Post by: obtuse_investor on March 31, 2018, 06:19:01 AM
Got my Proxy and voted for all Directors but Benjamin Watsa. I hope more people do the same , so they at least get the message.

By that logic, why vote for Christine N. McLean? She is Prem's daughter.
Title: Re: Fairfax 2018
Post by: Spekulatius on March 31, 2018, 09:19:11 AM
Got my Proxy and voted for all Directors but Benjamin Watsa. I hope more people do the same , so they at least get the message.

By that logic, why vote for Christine N. McLean? She is Prem's daughter.

Because I didn’t know that this is the case, otherwise I would have withheld the vote for her as well.
Title: Re: Fairfax 2018
Post by: Dazel on March 31, 2018, 09:34:51 AM


NetNet,

YES.
Title: Re: Fairfax 2018
Post by: dutchman on April 02, 2018, 11:19:31 AM
why doesn't Fairfax get clobbered when the market tanks?
Can't understand.
Title: Re: Fairfax 2018
Post by: wondering on April 02, 2018, 01:46:31 PM
https://www.economicswire.net/a-compelling-case-for-fairfax-financial-in-todays-environment.html

I found a fairly recent article about Fairfax's evaluation.  It makes similar points that have been brought on this threat before.  Note, one of the author's points is that in the short run, achieving the 15% increase in book value may be difficult considering the large amount of cash and short term investments they are holding.
Title: Re: Fairfax 2018
Post by: petec on April 03, 2018, 01:42:47 AM
Got my Proxy and voted for all Directors but Benjamin Watsa. I hope more people do the same , so they at least get the message.

By that logic, why vote for Christine N. McLean? She is Prem's daughter.

Because I didn’t know that this is the case, otherwise I would have withheld the vote for her as well.

McLean's relationship was laid out clearly in the shareholder letter.

I don't mean this aggressively, but I'm interested: why would you vote at all if you haven't researched the people?
Title: Re: Fairfax 2018
Post by: petec on April 03, 2018, 01:48:03 AM
Petec, is that a similar concept to how one time dividends have minor effects on share price compared to consistent/consistently increasing dividends?

Yes I guess so. The market seems to pay a premium for what it knows. So, it might pay 1.1x bvps because it knows there is a steady buyback driving bvps growth, but it won't pay 1.1x bvps for cash on the balance sheet that could be used for a buyback at a very attractive price. That's my sense anyway.
Title: Re: Fairfax 2018
Post by: wondering on April 03, 2018, 10:38:27 AM
https://ca.finance.yahoo.com/news/steven-cohen-wins-dismissal-8-143707890.html

Sad day.
Title: Re: Fairfax 2018
Post by: Dazel on April 03, 2018, 11:56:07 AM


Dutchman,

Fairfax does not need a reason to reverse $30 in a few hours like today....LOL. Buy back the shares Prem....the scenario is perfect.
Title: Re: Fairfax 2018
Post by: Dazel on April 03, 2018, 03:36:05 PM
https://www.bloomberg.com/news/articles/2018-04-02/stock-market-pain-bleeds-into-junk-bonds-as-hedging-costs-surge

This is what I have been talking about...those that are not looking closely would not see what has been happening in the credit markets in 2018. As a whole they are still not cheap but there is more value  to look at for Bradstreet then he has seen for quite awhile.
Title: Re: Fairfax 2018
Post by: Cigarbutt on April 03, 2018, 08:35:20 PM
"This is what I have been talking about...those that are not looking closely would not see what has been happening in the credit markets in 2018. As a whole they are still not cheap but there is more value  to look at for Bradstreet then he has seen for quite awhile."

Blip or early reset?

The high yield market has been interesting to watch. Many people describe a potential "wall" of maturing high yield debt that will need to be refinanced in the next 2 to 3 years. But this may just be a wall of worry as these "walls" have been "seen" before only to disappear as cans were kicked down the road and as market pros often said that junk bonds never really mature. :)

Maybe only noise for now and excitement perhaps needs to be tamed, remembering that, about 10 years ago, the spread between the benchmark US high-yield index and safer Treasurys quite rapidly moved up to 21.82% from a low of 2.41% recorded in the last innings of the last stable instability credit period.

Wonder if the bond team at Fairfax are considering all the endogenous scenarios?
At least now, they have the optionality.

https://fred.stlouisfed.org/series/BAMLH0A0HYM2
Title: Re: Fairfax 2018
Post by: Tommm50 on April 04, 2018, 08:23:15 AM
Regarding the Cohen dismissal, the headlines blare he wins a dismissal but the judge's ruling is "did not belong in that state's courts". There's nothing about the actual merits of the case. This seems a very curious result after 12 years. Something is quite rotten in New Jersey.
Title: Re: Fairfax 2018
Post by: mranski on April 04, 2018, 02:58:24 PM
For a loose canadian comparable, Intact insurance selling at 2x book. It has been a solid performer but this seems like too large of a valuation differential. Intact is a bit of a yield play I think.
Title: Re: Fairfax 2018
Post by: KFRCanuk on April 04, 2018, 06:25:42 PM
https://ca.finance.yahoo.com/news/steven-cohen-wins-dismissal-8-143707890.html
Sad day.
:(
Title: Re: Fairfax 2018
Post by: Dazel on April 05, 2018, 07:33:17 AM


Do any of you the brilliant insurance analysts have ballpark expectations for Fairfax first quarter underwriting? Obviously all will be watching AWH and Brit for reserve strength....
Title: Re: Fairfax 2018
Post by: Dazel on April 06, 2018, 06:21:47 AM


https://ca.finance.yahoo.com/news/fairfax-announces-early-redemption-allied-202313339.html
Title: Re: Fairfax 2018
Post by: ourkid8 on April 09, 2018, 11:02:28 AM
I understand your logic but let's look at a couple of subs within fairfax.  Northbridge (100.2) and C&F (103.4) have a 10 year CR average of over 100.  If we merge these two subs into a better run entity while at the same time removing duplicate costs within the structure we should be able to bring down those ratios.  I do not think this would signal to the market that no one should sell their business as it will signal to the market fairfax prefers decentralized however you need to perform at the level of what the company expects.   I believe this is similar to what Berkshire did by consolidating their insurance subs under Ajit.  He was able to remove costs from the structure so that it becomes a better run entity. (Please correct me if I am wrong) 

Why would they swap assets with Canadian Pension Plan? I assume that's who you are referring to.  Do you mean with OMERS who has a 40% equity position in Eurolife?   Fairfax got Eurolife for an amazing price and the business continues to kick-ass. (Please see the thread below)  What I would like to see is a consolidation of their numerous insurance companies under the Fairfax umbrella and Andy should be able to significantly take costs out of the system.  That would create significant value however I do not see Prem agreeing to do so due to their fair and friendly culture he continues to talk about. 

That would be a gigantic error. They have a lot of talented people beyond Andy Barnard and the reason they stay is because they can run their own businesses under Fairfax’s decentralised system. Centralise, and not only do you lose them all but you send a signal that no-one who wants to keep building their business should ever sell to them again. Plus, the insurance business are not a homogenous mass that can be run together. They’re a massively diverse group of niches that need focussed management. Fairfax and Andy Barnard’s influence is already felt across the group - for example in the changes they plan to make regarding cat tolerance at AWH. He couldn’t do a lot more, but the downside would be enormous.
Title: Re: Fairfax 2018
Post by: petec on April 09, 2018, 12:21:28 PM
I just don't think the CR tells you enough to make that call.

Consider 3 companies:
1) a specialist company that can write at 70% - but the niche is small and growth is limited.
2) a company at the more commoditised end of the market that loses all its customers writing at 95%.
3) a company at the more commoditised end of the market, writing at 100% when competitors with less cost discipline are writing at 101%, growing huge by slowly taking share, and making a ton of money investing the float.

Which is more valuable? And is the CR alone a good measure of whether the company has its costs under control?

Also, all else being equal (which it never is), long tail float written at 100% is more valuable than short tail float written at 99%, in the same way that a long term loan that costs you nothing is more valuable than a short term loan that costs you less than nothing.

My point is that the CR is as much about strategy as it is about costs. It’s not a sufficient tool (although it is a necessary tool) for judging management or efficiency or value creation. Its component parts - the loss ratio and the efficiency ratio - would be more helpful but even then you need to compare them to other insurance companies in the same segment, not to the other companies in Fairfax. For all the CR on its own tells you, these could be the two most efficient companies in their industries.

Take Crum for instance. Crum has transformed itself over the last decade. The mix of business is transformed and it’s stemmed what were huge underwriting losses. It generates a lot of float and IIRC it is one of the biggest payers of dividends to Fairfax. Looking at the headline CR and inferring that it is inefficient or badly managed just doesn't jive with me. I can't prove that you're wrong, but I can say with some confidence that the CR alone is not sufficient proof that you're right.

My understanding (correct me if I am wrong - I know less about Berkshire than Fairfax) is that Ajit has power over the Berkshire insurance subs but that they have not been consolidated into one company. Andy Barnard is the same - he already has huge practical influence over all the subsidiaries as I understand it and he has done a lot of work to remove duplicated costs and spread best practise, both of which can be done without consolidating companies legally. He also has all the info needed to make a decision like this. I am fairly sure that if he thought it was a good idea it would get done. Maybe it will be but I won't be surprised or disappointed if it isn't.


Title: Re: Fairfax 2018
Post by: ourkid8 on April 10, 2018, 02:00:11 PM
With the redemption of their high yielding debt and issuing new debt at 3%, we have ~$16-18M in savings a year so far...  Great job team, keep it coming!!!

https://ca.finance.yahoo.com/news/fairfax-announces-early-redemption-allied-202313339.html
Title: Re: Fairfax 2018
Post by: petec on April 10, 2018, 02:07:20 PM
Yes! Although there is a charge on the early redemption I believe, so it's not free money.
Title: Re: Fairfax 2018
Post by: tripleoptician on April 11, 2018, 08:00:21 AM

Look like around 42,000 shares cancelled in this quarter.

Prices look to be sub $640 CAD so approximate spend was $26-27 million CAD on buybacks.

Not horrendous but certainly not a dramatic buyback given the dry powder.

Title: Re: Fairfax 2018
Post by: tripleoptician on April 11, 2018, 08:01:43 AM
Here is a link for those that dont know about the canadian insider website that tracks filings

https://m.canadianinsider.com/node/7?ticker=FFH
Title: Re: Fairfax 2018
Post by: ourkid8 on April 11, 2018, 12:37:22 PM
This is great, thanks!  Am I reading this correctly? 

March 28 - Fairfax disposed of -41,611  -What does this mean?
March 27 - Fairfax acquired 7,318 ($637.83)
March 26 - Fairfax acquired 14,293 ($633.83)

Here is a link for those that dont know about the canadian insider website that tracks filings

https://m.canadianinsider.com/node/7?ticker=FFH
Title: Re: Fairfax 2018
Post by: Dynamic on April 11, 2018, 01:19:46 PM
I read it as:

Quote
Mar 28, 2018 (filed on Apr 10, 2018)
Nature of Transaction:38 - Redemption, retraction, cancellation, repurchase
# or value acquired/disposed of:-41,611
Price:--

If it's negative and the price is -- (blank) I would assume it's cancellation of treasury shares.

The other dates you showed with positive numbers of shares were presumably repurchased by Fairfax at the price shown but hadn't yet been cancelled.
Title: Re: Fairfax 2018
Post by: ourkid8 on April 12, 2018, 11:39:32 AM
Thank you, this is extremely helpful.  I looked back at the filings for 2018 and they repurchased a total of 41,611 shares and all of them were cancelled.  This board is amazing, you learn something new everyday.

I read it as:

Quote
Mar 28, 2018 (filed on Apr 10, 2018)
Nature of Transaction:38 - Redemption, retraction, cancellation, repurchase
# or value acquired/disposed of:-41,611
Price:--

If it's negative and the price is -- (blank) I would assume it's cancellation of treasury shares.

The other dates you showed with positive numbers of shares were presumably repurchased by Fairfax at the price shown but hadn't yet been cancelled.
Title: Re: Fairfax 2018
Post by: globalfinancepartners on April 12, 2018, 06:32:10 PM
latest bond offering priced (and previously hedged) -
https://www.fairfax.ca/news/press-releases/press-release-details/2018/Fairfax-Announces-Pricing-of-Senior-Notes-Offering/default.aspx
Title: Re: Fairfax 2018
Post by: Dazel on April 12, 2018, 07:14:02 PM

It’s is usual to see companies show the redemption of their shares at month end...in this case Fairfax redeemed and cancelled 41,000 shares. I have had trouble finding Fairfax buyback action in the past. Nice to see the share buy back kicking in!
Title: Re: Fairfax 2018
Post by: ourkid8 on April 24, 2018, 03:08:43 PM
Prem continues to show how undervalued Fairfax is...

https://www.fairfax.ca/news/press-releases/press-release-details/2018/First-Quarter-Accounting-Gain/default.aspx

Accordingly, Fairfax must also change the manner in which it accounts for its ownership interest in Quess through TCIL from a subsidiary to an investment in an associate company.  This change in accounting will result in a non-cash accounting gain at Fairfax of approximately US$600 million in Fairfax’s first quarter ended March 31, 2018.
Title: Re: Fairfax 2018
Post by: gary17 on April 25, 2018, 05:53:18 AM
pre market $600...
Title: Re: Fairfax 2018
Post by: dutchman on April 25, 2018, 06:01:06 AM
what, why? Because of toyrsus?
Title: Re: Fairfax 2018
Post by: gary17 on April 25, 2018, 06:15:45 AM
i have absolutely no idea. i see $650 now. it’s so weird. 
i would have thought the non cash accounting gain meant +700...
Title: Re: Fairfax 2018
Post by: FairFacts on April 25, 2018, 12:13:16 PM
On top of the Quess $600million gain to be booked in Q1 lets not forget about IIFL....

IIFL is splitting into three entities which should happen in this year.

Fairfax India is sitting on a $632mil unrecognized gain on IIFL and FFH is sitting on a $238mil unrecognized gain.
It the split causes these unrealized gains to be recognized on the books we will see another $450mil gain recognized this year.

Thats an 8% gain in BV before we have done anything, balance sheet will look better too (debt/equity ratio improvement). This year could get interesting......

Title: Re: Fairfax 2018
Post by: petec on April 25, 2018, 12:51:57 PM
On top of the Quess $600million gain to be booked in Q1 lets not forget about IIFL....

IIFL is splitting into three entities which should happen in this year.

Fairfax India is sitting on a $632mil unrecognized gain on IIFL and FFH is sitting on a $238mil unrecognized gain.
It the split causes these unrealized gains to be recognized on the books we will see another $450mil gain recognized this year.

Thats an 8% gain in BV before we have done anything, balance sheet will look better too (debt/equity ratio improvement). This year could get interesting......

Sorry if I’m being dim but why does recognising a $238m gain drive a $450m gain?
Title: Re: Fairfax 2018
Post by: FairFacts on April 25, 2018, 02:28:37 PM

Sorry if I’m being dim but why does recognising a $238m gain drive a $450m gain?

$238mil is the gain on FFH's direct holding in IIFL. Through Fairfax India's holding they will recognize an additional $212mil.
Title: Re: Fairfax 2018
Post by: ourkid8 on April 25, 2018, 02:50:48 PM
Based on Fairfax 'unlocking value' our BV should be around $485.51 (That's once IIFL splits into 3 separate entities)...We are sitting around 1.09x book and that's not including any earnings from operations + market gains (aka. Eurobank). 

On top of the Quess $600million gain to be booked in Q1 lets not forget about IIFL....

IIFL is splitting into three entities which should happen in this year.

Fairfax India is sitting on a $632mil unrecognized gain on IIFL and FFH is sitting on a $238mil unrecognized gain.
It the split causes these unrealized gains to be recognized on the books we will see another $450mil gain recognized this year.

Thats an 8% gain in BV before we have done anything, balance sheet will look better too (debt/equity ratio improvement). This year could get interesting......
Title: Re: Fairfax 2018
Post by: petec on April 26, 2018, 01:10:29 AM

Sorry if I’m being dim but why does recognising a $238m gain drive a $450m gain?

$238mil is the gain on FFH's direct holding in IIFL. Through Fairfax India's holding they will recognize an additional $212mil.

D'oh. Thanks!
Title: Re: Fairfax 2018
Post by: petec on April 26, 2018, 01:11:59 AM
Based on Fairfax 'unlocking value' our BV should be around $485.51 (That's once IIFL splits into 3 separate entities)...We are sitting around 1.09x book and that's not including any earnings from operations + market gains (aka. Eurobank). 

Agreed - although for completeness I have to point out there will be losses too on e.g. Blackberry.

EDIT - I take that back - BB not down much ytd, it's just fallen from a spike in 1q - but equally, Eurobank not up much, it just recovered from a dip in 1q.
Title: Re: Fairfax 2018
Post by: Dazel on April 26, 2018, 08:12:41 AM


These transactions are not new to anyone on the board....it looks like the fact that Prem had to announce them as a material change (they have been involved in the discussions of split of the investments for sometime)is likely the reason for the lack of buy back. The only buybacks that would be allowed would be the automatic purchases that Fairfax put in place before the discussions. While I am happy with the appreciation....very disappointed more shares were not bought back!
Title: Re: Fairfax 2018
Post by: TwoCitiesCapital on April 26, 2018, 09:44:50 AM
From the meeting today, sounds like buybacks will be the focus on retained earnings over the entire few years, but that current cash is reserved for buying back minority interests as they become available.
Title: Re: Fairfax 2018
Post by: racemize on April 26, 2018, 09:52:42 AM
From the meeting today, sounds like buybacks will be the focus on retained earnings over the entire few years, but that current cash is reserved for buying back minority interests as they become available.

I guess that means they have enough current cash for the minorities they want to buy out, so we're relying on current/future cash flow to the holding company for buybacks?
Title: Re: Fairfax 2018
Post by: ourkid8 on April 26, 2018, 10:05:31 AM
Exactly, no one should be expecting significant repurchases.   Sorry Dazel.

From the meeting today, sounds like buybacks will be the focus on retained earnings over the entire few years, but that current cash is reserved for buying back minority interests as they become available.

I guess that means they have enough current cash for the minorities they want to buy out, so we're relying on current/future cash flow to the holding company for buybacks?
Title: Re: Fairfax 2018
Post by: petec on April 26, 2018, 10:26:20 AM


These transactions are not new to anyone on the board....it looks like the fact that Prem had to announce them as a material change (they have been involved in the discussions of split of the investments for sometime)is likely the reason for the lack of buy back. The only buybacks that would be allowed would be the automatic purchases that Fairfax put in place before the discussions. While I am happy with the appreciation....very disappointed more shares were not bought back!

I hate to say it but I told you so! The buyback is a multiyear event funded by FCF; the cash on hand is for the OMERS stakes in Brit, Eurolife, and Allied. On the positive side the free cash flow from Toys R Us alone is enough to buy back 35bps of the stock each year ;)
Title: Re: Fairfax 2018
Post by: petec on April 26, 2018, 10:27:32 AM
From the meeting today, sounds like buybacks will be the focus on retained earnings over the entire few years, but that current cash is reserved for buying back minority interests as they become available.

I guess that means they have enough current cash for the minorities they want to buy out, so we're relying on current/future cash flow to the holding company for buybacks?

This is also what was communicated in the annual letter and meetings with shareholders. It’s not news.
Title: Re: Fairfax 2018
Post by: racemize on April 26, 2018, 10:30:33 AM
He said cash flow, but I don't think it was explicitly clear that all the current cash was off the table.
Title: Re: Fairfax 2018
Post by: ourkid8 on April 26, 2018, 10:46:36 AM
Over our history, we have issued 29.5 million shares as we expanded Fairfax from net premiums written of
$10 million to $10 billion (current run rate of $11.5 billion). During this period, we have also reduced our shares
outstanding by 6.7 million, for a net increase of 22.8 million. As the table below shows, our shares outstanding have
grown by 5.6x while net premiums written, investments and common equity have increased by 1,000x or more.
Henry Singleton, at Teledyne, reversed this trend, as you know, and over the next ten years we expect to do the
same – use our free cash flow to buy back our shares!


He said cash flow, but I don't think it was explicitly clear that all the current cash was off the table.
Title: Re: Fairfax 2018
Post by: racemize on April 26, 2018, 11:03:53 AM
Over our history, we have issued 29.5 million shares as we expanded Fairfax from net premiums written of
$10 million to $10 billion (current run rate of $11.5 billion). During this period, we have also reduced our shares
outstanding by 6.7 million, for a net increase of 22.8 million. As the table below shows, our shares outstanding have
grown by 5.6x while net premiums written, investments and common equity have increased by 1,000x or more.
Henry Singleton, at Teledyne, reversed this trend, as you know, and over the next ten years we expect to do the
same – use our free cash flow to buy back our shares!


He said cash flow, but I don't think it was explicitly clear that all the current cash was off the table.

Right--he said cash flow, but I don't think it was explicitly clear that all the current cash was off the table.
Title: Re: Fairfax 2018
Post by: petec on April 26, 2018, 11:12:02 AM
Over our history, we have issued 29.5 million shares as we expanded Fairfax from net premiums written of
$10 million to $10 billion (current run rate of $11.5 billion). During this period, we have also reduced our shares
outstanding by 6.7 million, for a net increase of 22.8 million. As the table below shows, our shares outstanding have
grown by 5.6x while net premiums written, investments and common equity have increased by 1,000x or more.
Henry Singleton, at Teledyne, reversed this trend, as you know, and over the next ten years we expect to do the
same – use our free cash flow to buy back our shares!


He said cash flow, but I don't think it was explicitly clear that all the current cash was off the table.

Right--he said cash flow, but I don't think it was explicitly clear that all the current cash was off the table.

You’re right. I inferred that from the amount needed to buy in the minorities, and the repeated references to Singleton. It was implicit but not explicit.
Title: Re: Fairfax 2018
Post by: Dazel on April 27, 2018, 05:20:31 AM


While Petec has been right on the objectivity of the amount of stock to repurchased as not as high as mine...I did expect a bigger chunk of buybacks...that were likely held back first quarter.

If anyone was listening I said they would and should buy back large amounts below $700. Well we are there....so I do think and I will defer to Petec’s view. Very little buy backs it was an opportunity.

Prem’s character questioned, Allied being disastrous, Indian holding companies where Prem would steal the company...can’t remmeber their term, prem’s Family getting money they don’t deserve, HW the worst investors ever, value is dead. Buy bitcoin and pot stocks instead..LOL.

It’s not time to claim victory but a move from $565 (when I came back to the board to defend Prem and Fairfax)....is significant. Especially with the worst hurricane season on record!

The keys now that buyback will not be there....
1. Bradstreet sees fit to engage
2. Insurance companies “all” fire like they can

You have and will see the converts change their tune on Prem and Fairfax will turn positive. I have seen this movie before...it’s $1000 a share in not that long a period of time. Expect crickets on the board expect for those brave and the ones that counted the assets will make a lot of money. They will say it was easy...should have been able to see it. Well some did...congrats for now...FFH is just getting started.

Long and strong Prem and Fairfax...As I said....they will blow away MKL and BRK over the next number of years...it’s just math.

Dazel
Title: Re: Fairfax 2018
Post by: petec on April 27, 2018, 05:48:06 AM


While Petec has been right on the objectivity of the amount of stock to repurchased as not as high as mine...I did expect a bigger chunk of buybacks...that were likely held back first quarter.

If anyone was listening I said they would and should buy back large amounts below $700. Well we are there....so I do think and I will defer to Petec’s view. Very little buy backs it was an opportunity.

Prem’s character questioned, Allied being disastrous, Indian holding companies where Prem would steal the company...can’t remmeber their term, prem’s Family getting money they don’t deserve, HW the worst investors ever, value is dead. Buy bitcoin and pot stocks instead..LOL.

It’s not time to claim victory but a move from $565 (when I came back to the board to defend Prem and Fairfax)....is significant. Especially with the worst hurricane season on record!

The keys now that buyback will not be there....
1. Bradstreet sees fit to engage
2. Insurance companies “all” fire like they can

You have and will see the converts change their tune on Prem and Fairfax will turn positive. I have seen this movie before...it’s $1000 a share in not that long a period of time. Expect crickets on the board expect for those brave and the ones that counted the assets will make a lot of money. They will say it was easy...should have been able to see it. Well some did...congrats for now...FFH is just getting started.

Long and strong Prem and Fairfax...As I said....they will blow away MKL and BRK over the next number of years...it’s just math.

Dazel

Hear hear Dazel and props to you for your drumbeat of positivity when sentiment was at the bottom.
Title: Re: Fairfax 2018
Post by: ourkid8 on April 27, 2018, 06:04:27 AM
Agreed!  Fairfax has become a significant position in my portfolio so let the good times roll.  At the Fairfax dinner, Brian confirmed he has allocated his fixed income portfolio in 1 year maturities so he has not 'engaged' yet...



While Petec has been right on the objectivity of the amount of stock to repurchased as not as high as mine...I did expect a bigger chunk of buybacks...that were likely held back first quarter.

If anyone was listening I said they would and should buy back large amounts below $700. Well we are there....so I do think and I will defer to Petec’s view. Very little buy backs it was an opportunity.

Prem’s character questioned, Allied being disastrous, Indian holding companies where Prem would steal the company...can’t remmeber their term, prem’s Family getting money they don’t deserve, HW the worst investors ever, value is dead. Buy bitcoin and pot stocks instead..LOL.

It’s not time to claim victory but a move from $565 (when I came back to the board to defend Prem and Fairfax)....is significant. Especially with the worst hurricane season on record!

The keys now that buyback will not be there....
1. Bradstreet sees fit to engage
2. Insurance companies “all” fire like they can

You have and will see the converts change their tune on Prem and Fairfax will turn positive. I have seen this movie before...it’s $1000 a share in not that long a period of time. Expect crickets on the board expect for those brave and the ones that counted the assets will make a lot of money. They will say it was easy...should have been able to see it. Well some did...congrats for now...FFH is just getting started.

Long and strong Prem and Fairfax...As I said....they will blow away MKL and BRK over the next number of years...it’s just math.

Dazel

Hear hear Dazel and props to you for your drumbeat of positivity when sentiment was at the bottom.
Title: Re: Fairfax 2018
Post by: StubbleJumper on April 27, 2018, 10:17:40 AM


While Petec has been right on the objectivity of the amount of stock to repurchased as not as high as mine...I did expect a bigger chunk of buybacks...that were likely held back first quarter.

If anyone was listening I said they would and should buy back large amounts below $700. Well we are there....so I do think and I will defer to Petec’s view. Very little buy backs it was an opportunity.

Prem’s character questioned, Allied being disastrous, Indian holding companies where Prem would steal the company...can’t remmeber their term, prem’s Family getting money they don’t deserve, HW the worst investors ever, value is dead. Buy bitcoin and pot stocks instead..LOL.

It’s not time to claim victory but a move from $565 (when I came back to the board to defend Prem and Fairfax)....is significant. Especially with the worst hurricane season on record!

The keys now that buyback will not be there....
1. Bradstreet sees fit to engage
2. Insurance companies “all” fire like they can

You have and will see the converts change their tune on Prem and Fairfax will turn positive. I have seen this movie before...it’s $1000 a share in not that long a period of time. Expect crickets on the board expect for those brave and the ones that counted the assets will make a lot of money. They will say it was easy...should have been able to see it. Well some did...congrats for now...FFH is just getting started.

Long and strong Prem and Fairfax...As I said....they will blow away MKL and BRK over the next number of years...it’s just math.

Dazel


Dazel, your enthusiasm is nice, but try to remain a little balanced.  It's quite obvious that ffh is positioned to rack up decent operating earnings over the next 1 to 5 years, and it's quite obvious that the pricing in February/March was on the threshold of nicely cheap at approx 1x adjusted bv.  That's all fine and it bodes well for the future.

However, completely separately from the current valuation situation, ffh has undertaken a number of actions that are of dubious integrity from a corporate governance perspective.  Integrity and not a matter of degree.  Should we not be concerned about abuses of non-multiple voting shareholders?  Really, is it okay if abusive decisions are made as long as the dollars are small?  Imo, poor governance is poor governance and we should remain highly vigilant when we see it in small areas because often it's the tip of the iceberg (ie, what other decisions are being made that might benefit the watsa family without benefitting other shareholders?  Are there other things happening that do not require disclosure, but are still of dubious integrity?)

Fwiw, I am optimistic about ffh's short-term outlook, but in no way will that impact my concerns about some of the historical risk management errors that ffh has made or the ongoing governance concerns.  In fact, you might argue that those issues were the driver's of the recent valuation opportunity...


Sj
Title: Re: Fairfax 2018
Post by: FairFacts on April 27, 2018, 10:34:58 AM
SJ,

What governance issues?
Title: Re: Fairfax 2018
Post by: StubbleJumper on April 27, 2018, 11:01:12 AM
SJ,

What governance issues?

1) reweighting the multiple voting shares to maintain control, and after losing the vote, holding a second vote (presumably after twisting some arms of institutional holders?).

2) Using the reweighted multiple voting shares to appoint Ben watsa to the bod, despite the fact that the kid is wet behind the ears and would never be appointed to any other board of a major Canadian corporation on the basis of merit.

3) outsourcing a portion of ffh's investment portfolio to be managed by Ben watsa despite the fact that there are scads of equally well qualified (better qualified) firms in Toronto that are arms length.

4) using the multiple voting shares to appoint Christine to the bod despite the fact that she would never qualify to sit on a bod of a major Corp with her current level of experience.



So, it's not a partially favourable trend.  It leaves the open question of whether ffh engaged in that shitty Canadian tradition of paying institutional holders for their vote.  And it leaves us wondering what other things are being done for the family on ffh's dollar.  When the family takes a trip to India related to the dakshana charity, we just hope to hell that it was paid for with family money rather than ascribing business purposes to it and having it paid by ffh.  And that's the problem.  Once you start with small abuses, the level of confidence amongst minority holders plunges.


Sj
Title: Re: Fairfax 2018
Post by: FairFacts on April 27, 2018, 02:18:30 PM
SJ,

What governance issues?

1) reweighting the multiple voting shares to maintain control, and after losing the vote, holding a second vote (presumably after twisting some arms of institutional holders?).

2) Using the reweighted multiple voting shares to appoint Ben watsa to the bod, despite the fact that the kid is wet behind the ears and would never be appointed to any other board of a major Canadian corporation on the basis of merit.

3) outsourcing a portion of ffh's investment portfolio to be managed by Ben watsa despite the fact that there are scads of equally well qualified (better qualified) firms in Toronto that are arms length.

4) using the multiple voting shares to appoint Christine to the bod despite the fact that she would never qualify to sit on a bod of a major Corp with her current level of experience.



So, it's not a partially favourable trend.  It leaves the open question of whether ffh engaged in that shitty Canadian tradition of paying institutional holders for their vote.  And it leaves us wondering what other things are being done for the family on ffh's dollar.  When the family takes a trip to India related to the dakshana charity, we just hope to hell that it was paid for with family money rather than ascribing business purposes to it and having it paid by ffh.  And that's the problem.  Once you start with small abuses, the level of confidence amongst minority holders plunges.


Sj

I hear you! My impression of Prem is based on close monitoring of FFH over the past two years. I have listened intently to the conference calls and studied the results and his commentary. My conclusion is that he is pretty consistent and constantly emphasizes the Guiding Principles and the Fair and Friendly Culture. Now on to your concerns about governance.

Points 1, 2 and 4. Multiple voting shares.
He states clearly that the purpose behind this move is to prevent 'our' company from being taken over - "now and after I pass away because those shares will never be sold". He goes on to say that his son Ben and Daughter Christine joined the board for the very same reason.

Point 3 - Ben managing a $50mil slice of the investment portfolio.
"The fund has had excellent results over the six years since it began"...."We invested in the fund to get access to those excellent returns, but also to potentially do debt and warrant deals with some of the fund's investee companies".

In otherwords these are all actions very consistent with his long term strategy (never selling etc..) AND fully disclosed, I don't have any issue with them.

Now, worrying a little about Allied World...but times will tell....
Title: Re: Fairfax 2018
Post by: StubbleJumper on April 28, 2018, 11:22:01 AM
SJ,

What governance issues?

1) reweighting the multiple voting shares to maintain control, and after losing the vote, holding a second vote (presumably after twisting some arms of institutional holders?).

2) Using the reweighted multiple voting shares to appoint Ben watsa to the bod, despite the fact that the kid is wet behind the ears and would never be appointed to any other board of a major Canadian corporation on the basis of merit.

3) outsourcing a portion of ffh's investment portfolio to be managed by Ben watsa despite the fact that there are scads of equally well qualified (better qualified) firms in Toronto that are arms length.

4) using the multiple voting shares to appoint Christine to the bod despite the fact that she would never qualify to sit on a bod of a major Corp with her current level of experience.



So, it's not a partially favourable trend.  It leaves the open question of whether ffh engaged in that shitty Canadian tradition of paying institutional holders for their vote.  And it leaves us wondering what other things are being done for the family on ffh's dollar.  When the family takes a trip to India related to the dakshana charity, we just hope to hell that it was paid for with family money rather than ascribing business purposes to it and having it paid by ffh.  And that's the problem.  Once you start with small abuses, the level of confidence amongst minority holders plunges.


Sj

I hear you! My impression of Prem is based on close monitoring of FFH over the past two years. I have listened intently to the conference calls and studied the results and his commentary. My conclusion is that he is pretty consistent and constantly emphasizes the Guiding Principles and the Fair and Friendly Culture. Now on to your concerns about governance.

Points 1, 2 and 4. Multiple voting shares.
He states clearly that the purpose behind this move is to prevent 'our' company from being taken over - "now and after I pass away because those shares will never be sold". He goes on to say that his son Ben and Daughter Christine joined the board for the very same reason.

Point 3 - Ben managing a $50mil slice of the investment portfolio.
"The fund has had excellent results over the six years since it began"...."We invested in the fund to get access to those excellent returns, but also to potentially do debt and warrant deals with some of the fund's investee companies".

In otherwords these are all actions very consistent with his long term strategy (never selling etc..) AND fully disclosed, I don't have any issue with them.

Now, worrying a little about Allied World...but times will tell....



Yes, an explanation was furnished for reweighted the multiple voting shares.  The real question is whether that explanation is beneficial to shareholders broadly or just to the watsa family.  Is it beneficial to grant control to the next generation that hasn't earned it and hasn't built a damned thing.  The fact that two votes were required will pretty much answer that question.  Multiple voting shares are a shitty governance approach to begin with, and reweighting was unconscionable.  It is quite likely that talent will skip a generation and we might badly want someone to take over ffh if Ben and Christine don't cut the mustard...but we'll be stuck with them.  How much of your money is currently in Power Corp which is the poster child for talent skipping a generation...or would the poster child be Seagram's? 😉

On the question of giving Ben a slice of the investment portfolio, my bullshit detector is ringing loudly.  The explanation is tripe.  There are any number of outfits in Toronto that have great records and operate at arms length.  The decision was made for the pure benefit of the watsa family, and be damned about the interests of the rest of us who own 93% of the company.  Disclosure was marginal, because I've seen no indication what we are paying in investment fees.  Is it 1%, 2%, some other amount?  So the family is getting some undisclosed financial benefit.  I will acknowledge that the amount is small in the context of ffh's operations and assets, but integrity is not a matter of degree.

I'm not at all worried about allied.  Prems game is acquisitions.  Some have been fabulous and some less than fabulous.  There will be some disappointments, but those are part of the batting average.  At least they do not raise questions about the family's integrity.
Title: Re: Fairfax 2018
Post by: John Hjorth on April 28, 2018, 12:26:51 PM
StubbleJumper & FairFacts,

Thank you for a discussion, that to me has merit, and thereby is valid and fertile.

Discussions like this is what makes CoBF so awesome.

I guess it all boils down to personal trade offs based on preferences etc., combined with investment style [position sizing etc.]
Title: Re: Fairfax 2018
Post by: nodnub on April 29, 2018, 01:08:53 AM
I'm a long time Fairfax shareholder and supporter. I was also disappointed in the multi voting share changes.

There has been discussion of the appropriateness of Ben amd Christine on the board...   

What about Karen Jurjevich?    High school principal from Prem's daughter's high school.

She could be a wonderful person and maybe a good friend of the Watsa family but how is that relevant as a board member at a company like Fairfax?  Doesn't appear to have relevant experience and I can't imagine her relationship to the family would make her very independant while taking action as a board member?

Karen L. Jurjevich
Ms. Jurjevich is Principal of Branksome Hall, a leading private International Baccalaureate (IB) World School for girls located in Toronto, and is also the CEO and Principal of Branksome Hall Global. Prior to joining Branksome Hall in 1998, Ms. Jurjevich was a Principal in the Toronto District School Board and, from 1988 to 1992, taught at Havergal College in Toronto, Ontario. Prior thereto, Ms. Jurjevich held a number of teaching positions and was previously a member of the Board of the Canadian Accredited Independent Schools, the Board of the Conference of Independent Schools of Ontario, the International Baccalaureate, North American Independent Schools Task Force. Ms. Jurjevich recently graduated from the Stanford Executive Program at the Stanford Graduate School of Business.
Title: Re: Fairfax 2018
Post by: Dazel on April 29, 2018, 06:34:52 AM


SJ,

The only thing not balanced is my investment account its asset rich!! Prem has made me buckets of cash! And only pays himself $600k a year to run, live and breath Fairfax and 95% of his net worth is  in the company what the hell else do I Want?

Dazel


Title: Re: Fairfax 2018
Post by: StubbleJumper on April 29, 2018, 08:49:28 AM


SJ,

The only thing not balanced is my investment account its asset rich!! Prem has made me buckets of cash! And only pays himself $600k a year to run, live and breath Fairfax and 95% of his net worth is  in the company what the hell else do I Want?

Dazel


Well, I guess that's one perspective.  "I don't care if my business partner has integrity as long as I'm making money."  Hopefully that perspective will work out well for you.

More broadly, it's interesting that someone should say that they are making buckets of money on ffh.  I guess if you have specific entry and exit points that are particularly favourable a guy could be beating the market by holding ffh.  On the other hand, some of the decisions that we've spoken of at length on this board have driven a pretty ugly three-year and five-year chart (the ten year chart isn't much better).  I'm optimistic about the next one to five years, but the past five have been forgettable.


Sj
Title: Re: Fairfax 2018
Post by: Dazel on April 29, 2018, 02:52:15 PM


Your welcome SJ.

Title: Re: Fairfax 2018
Post by: globalfinancepartners on May 03, 2018, 02:08:57 PM
Results are out -
https://www.fairfax.ca/news/press-releases/press-release-details/2018/First-Quarter-Financial-Results/default.aspx
Title: Re: Fairfax 2018
Post by: ABM on May 03, 2018, 02:31:03 PM
appears to be solid print across many fronts. my big concern was allied reserve developments and it looks like small redundancy and 94% CR for Q.  At $560/share implies 1.2x Q1 BVPS so needs strong results to support valuation but not very demanding compared to peers imo   
Title: Re: Fairfax 2018
Post by: FairFacts on May 03, 2018, 02:42:11 PM
appears to be solid print across many fronts. my big concern was allied reserve developments and it looks like small redundancy and 94% CR for Q.  At $560/share implies 1.2x Q1 BVPS so needs strong results to support valuation but not very demanding compared to peers imo

I read CR of 96% per the press release?

Title: Re: Fairfax 2018
Post by: TwoCitiesCapital on May 03, 2018, 02:58:24 PM
appears to be solid print across many fronts. my big concern was allied reserve developments and it looks like small redundancy and 94% CR for Q.  At $560/share implies 1.2x Q1 BVPS so needs strong results to support valuation but not very demanding compared to peers imo

Closer to 1.1x when accounting for the $800 million in gains from fare value adjustments to investments in associates. Maybe even a little less when considering unrealized gains in investment portfolio since end of March - probably in the ballpark of $150-200M overall.
Title: Re: Fairfax 2018
Post by: ABM on May 03, 2018, 03:28:42 PM
appears to be solid print across many fronts. my big concern was allied reserve developments and it looks like small redundancy and 94% CR for Q.  At $560/share implies 1.2x Q1 BVPS so needs strong results to support valuation but not very demanding compared to peers imo

Closer to 1.1x when accounting for the $800 million in gains from fare value adjustments to investments in associates. Maybe even a little less when considering unrealized gains in investment portfolio since end of March - probably in the ballpark of $150-200M overall.

Yeah I can definitely appreciate that adjustment but I can see an argument to also adjust for the goodwill & intangibles which represent ~45% of common equity. I found FFH has a relative high level of these intangible assets. On a P/TBV FFH aint that cheap compared to peers. 

@ fairfacts you are correct about the Allied CR
Title: Re: Fairfax 2018
Post by: FairFacts on May 03, 2018, 04:03:47 PM
ABM, I may have jumped the gun, I was pointing out consolidated CR at 96% (not Allied).


Title: Re: Fairfax 2018
Post by: Dazel on May 03, 2018, 05:04:19 PM
 
Fairfax is looking like some of us thought....strong. Congrats Fairfax team!

Buybacks at almost $300m since quarter 4..not that disappointed they were buying just not cancelling.
India investments showing their real value
Bradstreet buying Treasuries yield rising
$125m unrealized bond losses is exceptional for the rate rise first quarter.
Allied looked OK
96% not bad for jnsurance...
Title: Re: Fairfax 2018
Post by: mcliu on May 03, 2018, 06:29:09 PM
If you back-out the one-time Quess gain, equity returns are still quite weak..
Title: Re: Fairfax 2018
Post by: Tommm50 on May 03, 2018, 07:45:56 PM
Doesn't it count?
Title: Re: Fairfax 2018
Post by: StubbleJumper on May 04, 2018, 05:10:20 AM
I was a little surprised to see that FFH moved ~$5b from cash equivalents into treasuries.  Looks like they are mainly 1-5 year treasuries, so that would likely be a YTM of what 2%, 2.25%?  So, that's probably $100m annually of incremental income.  It was the right thing to do, but I'm surprised that it was done with such conviction (ie, magnitude and speed).  There's a good chance that these expire in 2 or 3 years and will be re-rated favourably as interest rates climb.

I'm not sure that I like the underwriting results.  During the last conference call, Prem spoke of rate increases for renewals, but given the accident year CRs, you'd be hard pressed to see the benefit of any rate improvements.  Renewals are stronger in Q2, so maybe things will get better from here?


SJ
Title: Re: Fairfax 2018
Post by: ourkid8 on May 04, 2018, 05:15:53 AM
At the Fairfax shareholder dinner, Mr. Bradstreet said they are all in 1 year treasuries.

I was a little surprised to see that FFH moved ~$5b from cash equivalents into treasuries.  Looks like they are mainly 1-5 year treasuries, so that would likely be a YTM of what 2%, 2.25%?  So, that's probably $100m annually of incremental income.  It was the right thing to do, but I'm surprised that it was done with such conviction (ie, magnitude and speed).  There's a good chance that these expire in 2 or 3 years and will be re-rated favourably as interest rates climb.
Title: Re: Fairfax 2018
Post by: maxthetrade on May 04, 2018, 06:24:10 AM
The 2018 AM slides are now uploaded:
https://s1.q4cdn.com/579586326/files/doc_downloads/2018/2018-Fairfax-AGM.pdf
Title: Re: Fairfax 2018
Post by: StubbleJumper on May 04, 2018, 07:51:29 AM
At the Fairfax shareholder dinner, Mr. Bradstreet said they are all in 1 year treasuries.

I was a little surprised to see that FFH moved ~$5b from cash equivalents into treasuries.  Looks like they are mainly 1-5 year treasuries, so that would likely be a YTM of what 2%, 2.25%?  So, that's probably $100m annually of incremental income.  It was the right thing to do, but I'm surprised that it was done with such conviction (ie, magnitude and speed).  There's a good chance that these expire in 2 or 3 years and will be re-rated favourably as interest rates climb.



Thanks, that's helpful.  so they've probably locked in a YTM a shade better than 2%.  And it'll likely be higher when the capital is re-invested next winter.


SJ
Title: Re: Fairfax 2018
Post by: Cigarbutt on May 04, 2018, 08:00:05 AM
I was a little surprised to see that FFH moved ~$5b from cash equivalents into treasuries. 

I'm not sure that I like the underwriting results.  During the last conference call, Prem spoke of rate increases for renewals, but given the accident year CRs, you'd be hard pressed to see the benefit of any rate improvements.  Renewals are stronger in Q2, so maybe things will get better from here?

SJ

Three aspects:

1-on the underwriting side, Q1 to Q1 comparisons have limited value but I would say that 2018 Q1 results were satisfactory because a) accident yr CR went from 99,6% to 99,1% and AWH reported below 100% with minimal positive reserve development. So, no major surprise and no major break in a relatively favorable trend.

2-on the operational leverage side, surprised too that disclosures don't show much in terms of increased cat exposure. Various industry reports tend to show a persistence of soft conditions in most other areas. Most of the growth in NPW came from Odyssey Group (insurance lines). For AWH, Q1 typically shows higher premiums versus the rest of the year and, compared to Q1 last year, NPW increased about 9% to 735 million which should result in around 2,3 billion NPW for the year.

3-on the investment side, the significant capital shift on the fixed income is not indicative of reach for yield. For this aspect, FFH's position continues to be unique in the industry.
Title: Re: Fairfax 2018
Post by: FairFacts on May 04, 2018, 09:35:24 AM
Prem Watsa announced that he will no longer host the conference calls, handing over the baton to Paul Rivett.

He sounded a little down beat in the announcement section but perked up during the Q&A. He focused (as he always does) on the Culture, Long-term, conservative approach. "We have a tremendous amount of flexibility".
Title: Re: Fairfax 2018
Post by: dutchman on May 04, 2018, 11:51:02 AM
is fairax still perceived as a market hedge?
Maybe it's my imagination, but it's usually down when the markets up and vice versa.
Title: Re: Fairfax 2018
Post by: chrispy on May 06, 2018, 04:59:06 PM
They have short duration bonds and a lot of cash. While they might be considered a hedge, it is far from how things were a couple of years ago
Title: Re: Fairfax 2018
Post by: Scunny Bunny on May 07, 2018, 01:00:57 AM
This company is at the outer edge of complexity for me because of the fact much of the associated company equity (TCI apart) is held by the insurance subs and the statutory disclosure of some of the listed subsidiaries is different to FFH interpretation and carrying values at the consolidated level.  I try to focus in on what I am paying for the insurance book relative to peers since in the past few years (ex-2017) it's been an excellent business.  I did a valuation in May last year suggesting at the time the insurance business was valued at about 1.3x Tangible book. At that time the shares were just over C$600, everyone on this board was very downbeat. So we've had an 18%ish return & that's been fine.

A few obvious things. The level of realised accounting profits in the past nine months is up there, especially since it mainly emanates from India - TCI deconsolidation of Quess, sale of First Capital etc. I suppose you can say it independently more than verifies the carrying values, but I would like to see a higher level of recurrent earnings, which of course is held back by investment performance.

All care and no responsibility here. To get to an adjusted tangible book, we've obviously got to make a heap of adjustments. I reckon tangible book within insurance and run off is about US$9.5billion, excluding the associates held within the insurance funds. Revaluing the parent capital etc for changes in value of associates (I am not going through the work -it's pretty complicated), deducting these values from the share price to get a price for the insurance business, I reckon we are paying about US$488/share for something with TBV of $340/share (remember the consolidated TBV is only US$250/share at end March 2018).  That's about 1.44x TBV, up from 1.3x about a year ago. I'm a holder, not a buyer.

In comparative terms, RNR trades at 1.2x TBV and is down 7% over a year; RE trades at 1.12x TBV and is also down 7% - both being buried by the natural disasters of 2018. (no pointing out MKL thank you). So Fairfax has got relatively more expensive versus a couple of straight reinsurers. I also wonder about the Allied World deal. Please bear in mind I live in Australia where we have our own special global insurance take on lousy investing, crazed acquisition, under reserving and perennial earnings disappointment called QBE which trades at 1.8x TBV.


     
 
Title: Re: Fairfax 2018
Post by: Value^2 on May 07, 2018, 04:24:13 AM
is fairax still perceived as a market hedge?
Maybe it's my imagination, but it's usually down when the markets up and vice versa.
I would say so.... They stayed fully hedged most part of this bull-market.
Title: Re: Fairfax 2018
Post by: Cigarbutt on May 07, 2018, 04:46:23 AM
1- I suppose you can say it independently more than verifies the carrying values, but I would like to see a higher level of recurrent earnings, which of course is held back by investment performance.

2- I also wonder about the Allied World deal. Please bear in mind I live in Australia where we have our own special global insurance take on lousy investing, crazed acquisition, under reserving and perennial earnings disappointment called QBE which trades at 1.8x TBV.   

For item 1,
-One can argue that the long term thinking associated with lumpiness of earnings is a positive. Do you agree?
-Another differentiator has been the "investment performance". IMO, to invest in FFH now, you need to factor in a macro component or you need to rely on their investment team to make the calls. That may be one of the reasons explaining the relative confusion about their current status as a market hedge. I am slowly coming to the conclusion that they just modified their hedge to a less costly one. Are you saying that FFH would carry a higher valuation if it would become more traditional in terms of investment style?

For item 2,
The last insurance acquisitions have been significant and quite satisfactory IMO. I have come to the conclusion, at this point, that 2017 Q3 and Q4 results are not significant enough to think that AWH was a bad acquisition. What makes you wonder about the Allied deal?
Title: Re: Fairfax 2018
Post by: Cigarbutt on May 14, 2018, 08:22:11 PM
Taking a long term view with a market share perspective listing relevant competitors (N.A. 2017).
There is still ample room to grow float.

http://www.naic.org/documents/web_market_share_170301_2016_property_lob.pdf
https://www.insurancejournal.com/research/app/uploads/2018/05/2017-NAIC-Market-Share-Data-Workers-Compensation.pdf
Title: Re: Fairfax 2018
Post by: globalfinancepartners on May 22, 2018, 09:20:56 AM
Was there a catalyst I am missing for today's rise in FFH share price?  Another insurer's results? Fairfax announcement / filing?
Title: Re: Fairfax 2018
Post by: Valuehalla on May 23, 2018, 10:17:24 AM
Fairfax Financial increased its holding of CenturyLink CTL in Q1 by 29 %.
It is now the 7th largest position in the portfolio of FFH with 2,3% of the portfolio.

I would like call your attention on the CTL section of the forum, where i publish a lot about CTL:

http://www.cornerofberkshireandfairfax.ca/forum/investment-ideas/ctl-centurylink/200/

Although the price went up already from its low of 13,16 to 19 $ now, i think its still cheap and a great valueinvestment, flanked by a 11,7 % dividend yield.

Free Cash Flow of CTL is expected around 3,15 to 3,35 B in 2018 and the marketcap is just 20,5 B today

Title: Re: Fairfax 2018
Post by: wondering on May 25, 2018, 06:22:45 AM
Apparently, Prem is on BNN Bloomberg interviewed by Amanda Lang at 1pm Toronto time.  I am not sure if I will have time to watch it, hopefully I can watch it online at a later time.
Title: Re: Fairfax 2018
Post by: alpha on May 25, 2018, 11:10:26 AM

I feel like although he is right he may be shooting himself in the foot long term by commenting on China's political system.

https://www.bloomberg.com//news/articles/2018-05-25/watsa-shuns-china-as-fairfax-looks-for-investment-in-india-u-s
Title: Re: Fairfax 2018
Post by: chrispy on May 25, 2018, 03:12:26 PM
Prem stated that the recent toys r us Canadian locations were more successful than the US locations. Does anyone on the board have recent experience with the toys r us stores in Canada?
Title: Re: Fairfax 2018
Post by: wisowis on May 26, 2018, 07:52:41 AM
https://www.youtube.com/watch?v=BW08lI8518A&feature=youtu.be
Title: Re: Fairfax 2018
Post by: Cigarbutt on May 26, 2018, 09:19:15 AM
Thoughts on the fixed income side of the portfolios.

Short version:

Fixed income spreads are very low along the spectrum in the context of a high supply of debt but a stronger appetite for spread, in still a low risk-free rate environment.

IMO, insurance companies are reaching for yield and FFH is well positioned to benefit.

Longer version:

http://www.naic.org/capital_markets_archive/171221.htm
http://www.naic.org/capital_markets_archive/180313.htm

The first link is about the junk exposure. Insurance firms have increased exposure to high yield debt and the comparison year used in the references should be 2008 and not 2009. In 2008, high yield debt issue dried up and the reasons why high yield exposures increased in 2009 were: 1-many issues were downgraded with investment grade issues becoming junk on the books and 2-despite the widely publicized issues with AIG, financial guarantee insurance firms and mortgage-backed securities, the high yield debt market recovered remarkably well despite the relative severity of the recession and liquidity issues in certain areas. P+C firms’ exposure in high yield debt is skewed to lower quality along the spectrum and has a significant component in leveraged loans which IMO now reflects higher risk as most of these loans are covenant-lite and comparatively probably riskier than the typical high yield security. Exposure is diversified and 2017 was a “good” year but, cyclically, widening spreads tend to be periodically strongly correlated (unlike the spike limited to oil and gas in 2015-6). Interesting to note that, in the high yield space, Fairfax has become involved with Toys“R”Us only after chapter 11.

The second link describes a significant exposure to the lower end of investment grade. Most of it is corporate. The authors don’t seem to be concerned but the exposure has increased considerably as we go through quite an unusually benign (and levered) period.

In terms of sentiment, which is kind of hard to assess, I just finished reading the 2017 annual report of Unico. Unico (UNAM) is a very small P+C insurer. I am a minority shareholder holding 1 share :) but some here may be interested to know that Bigliari (through The Lion Fund) owns 9,9% of shares outstanding. The reason I bring this up is that the company used to run investment portfolios in-house, based on a very very conservative profile. Starting this year, investment guidelines allow to reach for yield.

I think that the increased exposure to high yield debt (and high yield debt to be) is significant in the P+C insurance industry. This may go on for a while but reaching for yield is pro-cyclical. I very much like how Fairfax positioned the cash and fixed income side of their portfolios. I also happen to think that long exposure to credit default swaps especially to high yield debt at this point would make sense given that premiums now are very low and given potential time-weighted scenarios where spreads could widen considerably and in a correlated manner.

Title: Re: Fairfax 2018
Post by: chrispy on May 31, 2018, 05:37:05 AM
https://www.bloomberg.com/news/articles/2018-05-31/fairfax-is-said-to-prep-new-500-million-investment-in-seaspan
Title: Re: Fairfax 2018
Post by: investmd on May 31, 2018, 06:16:28 AM
https://www.bloomberg.com/news/articles/2018-05-31/fairfax-is-said-to-prep-new-500-million-investment-in-seaspan

need a subscription to read this article?
Title: Re: Fairfax 2018
Post by: StubbleJumper on May 31, 2018, 06:36:27 AM
https://www.bloomberg.com/news/articles/2018-05-31/fairfax-is-said-to-prep-new-500-million-investment-in-seaspan

need a subscription to read this article?


Open it in an incognito window (that's the term in Chrome, I think it's a "Private Browser" in Firefox)


SJ
Title: Re: Fairfax 2018
Post by: StubbleJumper on May 31, 2018, 06:50:57 AM
This is encouraging.  The Seaspan debt is still performing, and now FFH is up ~US$200m by exercising the warrants and they get another batch of warrants with an intrinsic value of ~US$25m.  That's a tidy profit in a relatively short time-frame.

So, with US$500m of debt and a commitment for ~US$700m market value of common shares, how much more should FFH invest in Seaspan?  What's an appropriate position size?  I'd say it's about as large as you'd want to see for that type of investment.  Happily, the additional 25 million warrants have a 7 year expiry, so there's no rush to sink more capital into seaspan than the US$1B that's already been committed.


SJ
Title: Re: Fairfax 2018
Post by: Saluki on June 07, 2018, 08:51:10 AM
at $500mm, it looks like its now their second biggest equity position (a few million behind Blackberry).

I think the Sokol presentation at the investing presentation the day before the Fairfax annual event was very informative and impressive.  They've announced a willingness to invest more in infrastructure like ports (Vancouver, I believe) which seems more promising that the shipping part.

As far as the shipping goes, with their recent merger and newer fleet I think it bodes well if the industry is consolidating.  After the Hanjin fiasco I think people will be more likely to look towards well financed operations with newer fleets (lower fuel costs, and no one was eager to lend money to Hanjin when the collateral they had was a fleet of rust buckets). So the growth prospects look good over the next few years if we avoid a trade war and global recession.
Title: Re: Fairfax 2018
Post by: StubbleJumper on June 07, 2018, 02:09:37 PM
at $500mm, it looks like its now their second biggest equity position (a few million behind Blackberry).

I think the Sokol presentation at the investing presentation the day before the Fairfax annual event was very informative and impressive.  They've announced a willingness to invest more in infrastructure like ports (Vancouver, I believe) which seems more promising that the shipping part.

As far as the shipping goes, with their recent merger and newer fleet I think it bodes well if the industry is consolidating.  After the Hanjin fiasco I think people will be more likely to look towards well financed operations with newer fleets (lower fuel costs, and no one was eager to lend money to Hanjin when the collateral they had was a fleet of rust buckets). So the growth prospects look good over the next few years if we avoid a trade war and global recession.


Well, as I understand it, the book value of the investment currently sits at US$500m in debt and now US$500m in equity for a total of US$1B.  Market value should be ~$500m for the debt and now ~$700m for the equity plus the new warrants that have been granted are worth ~$25m.  So, FFH has dedicated $1b of shareholders' capital to Seaspan and that investment now has a market value of ~US$1.225b.  That's a pretty good short-term return.

But, returning to the question of position sizing, the current market value of the Seaspan position is getting pretty close to the amount that was invested in BlackBerry and it's pretty close to the position size of the Bank of Ireland before FFH trimmed it.  My take is that they've put about as much capital into Seaspan as would be wise and that they should think hard before adding more (other than a couple hundred mil to exercise their new warrants in seven years).


Title: Re: Fairfax 2018
Post by: obtuse_investor on June 07, 2018, 02:52:43 PM
I try to avoid anchoring on the 1B price tag.

The RIM/Blackberry position was made many years ago when the balance sheet was substantially smaller. I suspect as a percentage of assets, the Seaspan deal is in line with their previous large positions.
Title: Re: Fairfax 2018
Post by: StubbleJumper on June 07, 2018, 03:09:04 PM
I try to avoid anchoring on the 1B price tag.

The RIM/Blackberry position was made many years ago when the balance sheet was substantially smaller. I suspect as a percentage of assets, the Seaspan deal is in line with their previous large positions.


Okay.  From a risk management perspective, do you have a view point about the appropriate position size?  I have certainly made my views clear about the difference between ploughing $1b into RIM vs ploughing $1B into JNJ....as well as the difference between investing $500m in Bank of Ireland and having it grow to $1B+ vs investing increasing amounts of capital into a posiiton.  So, does $1b in seaspan make sense, or should they bump it to $2B (basically full ownership)?  Is this a prudent investment at its current sizing and does it ever become imprudent?


SJ
Title: Re: Fairfax 2018
Post by: chrispy on June 08, 2018, 05:15:32 AM
Share price of nearly all holdings has gone up since the previous quarter's filings.  I put this together pretty quickly and do NOT have great confidence in the number of shares owned by FFH.  Either way, it is a good trend.  Sorry for the poor formatting too...

Amount and Increase in BV in millions:

Ticker   Shares   3/31/2018   6/8/2018   Amount   % increase   Increase in BV
BB   9.67E+07   $10.72   $12.25   $1,184.58   14.27%          $147.95
RFP   3.05E+07   $8.40   $10.65   $325.34   26.79%          $68.73
EGFEY   -          $0.44           $0.53      -            20.40%           -
KW   1.33E+07   $17.50   $20.60   $274.43   17.71%          $41.30
IPI   1.67E+07   $3.47   $4.65   $77.50   34.01%          $19.67
USG   1.53E+06   $39.40   $41.32   $63.24   4.87%          $2.94
CTL   1.85E+06   $16.29   $17.62   $32.55   8.16%          $2.46
                                                              Sum          $283.04
Title: Re: Fairfax 2018
Post by: Dazel on June 12, 2018, 05:08:02 AM

I am assuming everyone likes Prem again?
Kidding best of luck to all.

Dazel
Title: Re: Fairfax 2018
Post by: Spekulatius on June 16, 2018, 05:15:56 PM
I try to avoid anchoring on the 1B price tag.

The RIM/Blackberry position was made many years ago when the balance sheet was substantially smaller. I suspect as a percentage of assets, the Seaspan deal is in line with their previous large positions.

The positions that FFH takes are no slam dunks and have significant risk, as well as considerable upside. I think they should be sized accordingly, such that even 2 of them blowing up should not impair the company.
Title: Re: Fairfax 2018
Post by: petec on July 02, 2018, 06:17:29 AM
I think the Sokol presentation at the investing presentation the day before the Fairfax annual event was very informative and impressive. 

Does anyone have notes or a copy of the presentation?
Title: Re: Fairfax 2018
Post by: petec on July 02, 2018, 06:23:16 AM
https://www.bloomberg.com/news/articles/2018-05-31/fairfax-is-said-to-prep-new-500-million-investment-in-seaspan

The gravy is at the bottom of the article - not only do they get a quick gain on the warrants but they get gifted another 25m warrants at $8.05 - massively in the money - for exercising the first batch early. Sokol must be on the FFH payroll!
Title: Re: Fairfax 2018
Post by: Saluki on July 02, 2018, 06:41:30 AM
I think the Sokol presentation at the investing presentation the day before the Fairfax annual event was very informative and impressive. 

Does anyone have notes or a copy of the presentation?

A copy of the powerpoint is here if you scroll down:

https://www.ivey.uwo.ca/bengrahaminvesting/events/2018/04/2018-value-investing-conference/

It doesn't look like they posted the talk though. 
Title: Re: Fairfax 2018
Post by: petec on July 02, 2018, 10:24:32 AM
Many thanks.
Title: Re: Fairfax 2018
Post by: petec on July 03, 2018, 05:22:17 AM
I try to avoid anchoring on the 1B price tag.

The RIM/Blackberry position was made many years ago when the balance sheet was substantially smaller. I suspect as a percentage of assets, the Seaspan deal is in line with their previous large positions.

Okay.  From a risk management perspective, do you have a view point about the appropriate position size?  I have certainly made my views clear about the difference between ploughing $1b into RIM vs ploughing $1B into JNJ....as well as the difference between investing $500m in Bank of Ireland and having it grow to $1B+ vs investing increasing amounts of capital into a posiiton.  So, does $1b in seaspan make sense, or should they bump it to $2B (basically full ownership)?  Is this a prudent investment at its current sizing and does it ever become imprudent?

SJ

To me the structure is more important than the size. They have $1bn in Blackberry with full equity upside, but $500m of that has practically no downside (company is net cash and will generate FCF from this year, bond matures in 3 years). So, you're massively levered to anything positive happening but downside is 4% of shareholder's equity (andf 1.25% of the whole portfolio, which overall is very conservatively invested).

Seaspan is structured the same way (and I would argue there is very little risk in the bonds, despite the headline leverage, due to the phenomenal amount of contracted free cash flow the company will generate now that is has no capex).

The other thing that has changed is that Fairfax is a much bigger company due to both equity issues and realisation of value via asset sales. So while Blackberry might have been too big when it was made, I don't think either is now.


 

Title: Re: Fairfax 2018
Post by: Daphne on July 26, 2018, 03:10:37 PM
National Bank of Canada is initiating coverage on Fairfax Financial Holdings Ltd. (FFH-T) with a strong rating.

Analyst Jaeme Gloyn started coverage with an “outperform" rating and a target price of C$850, which expects a total return of about 20.1 per cent, including the company’s 1.4 per cent dividend.

Fairfax attempts to achieve 15 per cent BVPS [book value of equity per share] annual growth over the long term through solid underwriting performance and a focus on generating total returns on its asset portfolio – the latter a differentiator versus P&C insurance peers. With a market cap of US$15.5-billion and net premiums written of about US$12 billion (2018E), FFH is one of the top 10 insurance companies in North America," he said.

“We believe the company’s diversified operations (geographic, business lines, risks) and decentralized management approach support stable premiums growth (mid-single digit) and consistent combined ratio performance (long-term average of 95 per cent). We believe recently soft total return performance is in the company’s rear-view mirror following a shift to a more “risk-on” (but still conservative) approach. Though the timing of net gains is uncertain, we believe the company holds meaningful upside on several “at-cost” investments. Moreover, continued deployment of cash into other investments as well as declining interest expenses will further support stronger investment profitability,” he said.

“We expect Fairfax to deliver consistent double-digit ROE [return on equity] over the long term. Combining our outlook for underwriting profitability and investment returns, we believe FFH will generate about 10 per cent ROE through our forecast horizon. Supported by a solid balance sheet and capital levels, we expect management to enhance ROE through purchasing non-controlling interests, share buybacks and disciplined increases in underwriting leverage (i.e., in hard markets). Catastrophes (e.g., 2017) and adverse market movements (eroding total returns) pose material risks to our outlook; however, we believe these risks are sufficiently reflected in our target valuation,” he said.

“With a consensus ROE forecast of just 8.5 per cent in 2019, implying a approximately 1.2 times P/B [price to book value] – also the current trading multiple – we believe consensus (and the market) are missing some aspect of the profitability outlook. We use a 1.3 times P/B multiple on our Q2 2019 BV estimate to arrive at our price target of US$650 (C$850). Given an approximately 20 per cent total return, including a 1.4 per cent dividend yield, we rate the shares Outperform.”

The shares are currently trading near C$720. The median target price is C$755.
Title: Re: Fairfax 2018
Post by: walkie518 on July 26, 2018, 04:53:17 PM
I try to avoid anchoring on the 1B price tag.

The RIM/Blackberry position was made many years ago when the balance sheet was substantially smaller. I suspect as a percentage of assets, the Seaspan deal is in line with their previous large positions.

The positions that FFH takes are no slam dunks and have significant risk, as well as considerable upside. I think they should be sized accordingly, such that even 2 of them blowing up should not impair the company.

thoughts on Seaspan?
Title: Re: Fairfax 2018
Post by: petec on July 27, 2018, 01:53:46 AM
thoughts on Seaspan?

It's ending a capex programme so FCF is exploding. It's got a decent capital allocator at the helm and if he can't find any opportunities just reducing debt will be very good for the equity. It's at a good point in the capital cycle (new supply at multiyear lows). It's on c.5x FCF. Looks good to me.
Title: Re: Fairfax 2018
Post by: walkie518 on July 27, 2018, 06:45:06 AM
thoughts on Seaspan?

It's ending a capex programme so FCF is exploding. It's got a decent capital allocator at the helm and if he can't find any opportunities just reducing debt will be very good for the equity. It's at a good point in the capital cycle (new supply at multiyear lows). It's on c.5x FCF. Looks good to me.

The bear case is one of explosive leverage?  Is there anything else?

From what I understand, Seaspan looks to clean up the balance sheet then pick up the pieces in the next downturn occurs in the shipping industry?
Title: Re: Fairfax 2018
Post by: petec on July 27, 2018, 07:08:21 AM
thoughts on Seaspan?

It's ending a capex programme so FCF is exploding. It's got a decent capital allocator at the helm and if he can't find any opportunities just reducing debt will be very good for the equity. It's at a good point in the capital cycle (new supply at multiyear lows). It's on c.5x FCF. Looks good to me.

The bear case is one of explosive leverage?  Is there anything else?

From what I understand, Seaspan looks to clean up the balance sheet then pick up the pieces in the next downturn occurs in the shipping industry?

I don’t think the leverage is an issue now given a) equity issuances, b) massive contracted cash flows, and c) virtually no capex.

From a strategy point of view they’ve identified that they might be able to consolidate what is a very fragmented industry with several distressed players. They’ve also said they expect over time to deploy capital into other industries when prices are right. That is a cause for alarm or optimism depending on what you think of Sokol, who I think will oversee capital allocation. His record at Midamerican was extraordinary and he was a serious contender for the next CEO of Berkshire before the insider trading scandal, which tells you how much Buffett thought of his skills. I think this is his next “project”, as it were, and he’s said “the next ten years will be a lot of fun”. So I’m summary you’re paying 5x free cash flow to buy into a fairly lousy industry at a fairly good point in the cycle (both the industry’s capital cycle and the company’s free cash cycle) with a free option that a (flawed) genius does something clever with the cash flow. Not a dumb thing for Fairfax to have option - levered exposure to.
Title: Re: Fairfax 2018
Post by: wondering on August 01, 2018, 07:04:52 AM
https://ca.finance.yahoo.com/news/canadas-fairfax-set-19-percent-093200572.html

I thought Prem had indicated that Fairfax wouldn't be doing insurance company purchases for a while (perhaps he meant large insurance company purchases).  I assume that the feeling was that the price is right on this conversion.
Title: Re: Fairfax 2018
Post by: StubbleJumper on August 01, 2018, 07:33:49 AM
https://ca.finance.yahoo.com/news/canadas-fairfax-set-19-percent-093200572.html

I thought Prem had indicated that Fairfax wouldn't be doing insurance company purchases for a while (perhaps he meant large insurance company purchases).  I assume that the feeling was that the price is right on this conversion.


Thanks for posting that article.  I had no recollection of ~US$80m being invested in a convertible instrument in the Irish insurance sector -- either I never knew about it or I had forgotten entirely.

As I opined earlier this year in the buy-back discussion, I would be very surprised if Prem's past behaviour of being a serial-acquirer ever changes.  Adding an Irish insurer to the mix would seem to fit right into FFH's operations.   The remaining 80% of this one looks like it could be added for <US$500m, so it wouldn't constitute much more than a light snack for FFH!


SJ
Title: Re: Fairfax 2018
Post by: petec on August 01, 2018, 07:37:39 AM
https://ca.finance.yahoo.com/news/canadas-fairfax-set-19-percent-093200572.html

I thought Prem had indicated that Fairfax wouldn't be doing insurance company purchases for a while (perhaps he meant large insurance company purchases).  I assume that the feeling was that the price is right on this conversion.

This isn't a purchase. He bailed them out in 2015 and the convertible is now in the money. It would be pretty stupid not to convert!
Title: Re: Fairfax 2018
Post by: wondering on August 01, 2018, 10:28:33 AM
Thanks for clarifying.  :)
Title: Re: Fairfax 2018
Post by: petec on August 02, 2018, 09:25:44 AM
Not a bad day to own a third of RFP!
Title: Re: Fairfax 2018
Post by: StubbleJumper on August 02, 2018, 10:12:16 AM
Not a bad day to own a third of RFP!



Yep, it's nice to have days like this.  I wish we would have more of them!


SJ
Title: Re: Fairfax 2018
Post by: chrispy on August 11, 2018, 10:30:23 PM
A nice write-up that mashs together the 2017 and 2018 COBF Fairfax threads:

Fairfax Financial Offers Unique Exposure At Attractive Prices https://seekingalpha.com/article/4196979?source=ansh $FRFHF, $CIBEY, $EGFEY, $FFXDF, $FFXXF, $GRVVF
Title: Re: Fairfax 2018
Post by: John Hjorth on August 12, 2018, 03:39:05 AM
Yes, indeed, a very nice FFH trailer/teaser/bird perspective write-up by Ben Comston, chrispy,

Thank you for sharing it.
Title: Re: Fairfax 2018
Post by: Cigarbutt on August 12, 2018, 06:10:17 AM
Thank you also.

The report illustrates very well the valuation challenge (based on closely following the company for over twenty years) associated with a tendency for uncorrelated and lumpy results.

Often the earning power appears to be underestimated by the market and looking for reversion to the mean (like now) but somehow, to jump in, one has to agree with or have full confidence in their "seer" capability, a topic that has been discussed in another FFH thread (Ericopoly and others) before.
Title: Re: Fairfax 2018
Post by: wondering on August 29, 2018, 11:05:17 AM
https://www.fairfax.ca/news/press-releases/press-release-details/2018/Fairfax-Donating-US1-Million-for-Kerala-Flood-Relief/default.aspx
Title: Re: Fairfax 2018
Post by: wondering on September 04, 2018, 07:13:38 AM
https://www.theglobeandmail.com/business/article-why-canadas-reputation-as-a-kids-tv-production-powerhouse-is-under/

Interesting article about Fairfax's investment in Boat Rocker Media and the Canadian childrens TV programming industry.
Title: Re: Fairfax 2018
Post by: wondering on September 11, 2018, 02:02:14 PM
Interesting article about the excess capital in the reinsurance industry.

"We find an asymmetric risk / reward as we move through 2018 windstorm season. We calculate ~$60bn of excess capital in the industry. We believe this surplus capital could result in limited pricing improvement even with a material loss; much like the pricing reaction to 2017 losses. We expect SCOR's shares to be most exposed should a hurricane emerge, given highest disclosed sensitivities and most risk to its buy-back."

https://ftalphaville.ft.com/2018/09/11/1536679537000/When-the-wind-blows-your-money-away/
Title: Re: Fairfax 2018
Post by: Cigarbutt on September 11, 2018, 03:01:35 PM
Thank you wondering. That was useful.

Here's a recent AMBest report that offers complementary info on different topics including the impact of the ILS market.
http://www3.ambest.com/bestweek/DisplayBinary.aspx?TY=P&record_code=277679&URatingId=2855493

-most relevant pages of the document (3-9 and 34-39).

As you likely know, Markel has been expanding in a big way into the ILS space whereas Fairfax hasn't.

The cat-bond space appears to be a huge success, seemingly may have made the underwriting cycle irrelevant and people involved with transactions are getting comfortable, as most participants no longer require an independent rating agency opinion.

However, in 2017, from adequate sources, the average coupon on the bonds is about 5% and average expected loss stands at 2,7%.

Seems like an awfully thin margin but, so far, so good.
Title: Re: Fairfax 2018
Post by: valueinvesting101 on September 20, 2018, 12:09:04 PM
https://www.fairfaxindia.ca/news/press-releases/press-release-details/2018/Fairfax-India-Announces-an-Agreement-With-Sanmar-Chemicals-Group/default.aspx

As a result of this agreed transaction and positive operational developments at Sanmar, in the third quarter of 2018 Fairfax India will record investment gains of approximately $252 million (INR 18.3 billion), comprised of approximately $190 million (INR 13.8 billion) from common shares and approximately $62 million (INR 4.5 billion) from bonds, an increase in book value per share of approximately $1.62.
Title: Re: Fairfax 2018
Post by: gokou3 on September 20, 2018, 04:30:48 PM
Thanks for sharing.

Per 2018Q2 earnings PR,
"At June 30, 2018 common shareholders' equity was $2,056.2 million, or $13.26 per share"

So adding $1.62 to this would give $14.88, close to the current stock price.  The INR currrency dropped by 5% since June 30, but since with the successful investments in Sanmar and Bangalore airport, i think I can have some confidence in the Indian team's ability to allocate capital.

For this, I just initiated a long position.
Title: Re: Fairfax 2018
Post by: chrispy on September 21, 2018, 04:17:17 AM
Great update. I think this gain will roughly equal the decrease in BV due to the rupee this quarter. Regardless of the short term currency fluctuations, it is a great sign.
Title: Re: Fairfax 2018
Post by: ourkid8 on September 25, 2018, 10:32:46 AM
https://finance.yahoo.com/news/intention-normal-course-issuer-bid-113000070.html

Under its existing normal course issuer bid, Fairfax has purchased 700,539 of its Subordinate Voting Shares, which included Subordinate Voting Shares reserved for share-based payment awards, through open market purchases on the TSX during the last twelve months at a weighted average price per share of Cdn.$667.29. Fairfax has not purchased any Preferred Shares under its existing normal course issuer bid. (Fairfax has spent  $467,462,669.31 on share repurchases in the last year)



Title: Re: Fairfax 2018
Post by: Dazel on October 03, 2018, 04:17:37 AM


Excellent buy back prices!

While many do not pay attention to buy backs it is the secret math to a high share
Price over the longer term. Fairfax has reached critical mass....and I believe will follow Singleton’s Teledyne model as long as we are cheap.
Title: Re: Fairfax 2018
Post by: LightWhale on October 03, 2018, 04:27:05 AM
Eurobank's stock price plummeting
https://www.bloomberg.com/news/articles/2018-10-03/greek-banks-said-to-promise-deep-cuts-to-pile-of-soured-debt
Title: Re: Fairfax 2018
Post by: chrispy on October 05, 2018, 05:37:08 AM
"Seaspan, the world’s largest non-operating containership owner, has announced its first significant investment outside the sector, suggesting it intends to diversify its business model."

https://gcaptain.com/seaspan-diversifies-as-it-steps-in-to-take-control-and-save-swiber/
Title: Re: Fairfax 2018
Post by: FFHWatcher on October 07, 2018, 09:00:17 PM
https://finance.yahoo.com/news/intention-normal-course-issuer-bid-113000070.html

Under its existing normal course issuer bid, Fairfax has purchased 700,539 of its Subordinate Voting Shares, which included Subordinate Voting Shares reserved for share-based payment awards, through open market purchases on the TSX during the last twelve months at a weighted average price per share of Cdn.$667.29. Fairfax has not purchased any Preferred Shares under its existing normal course issuer bid. (Fairfax has spent  $467,462,669.31 on share repurchases in the last year)

I can't see that many share purchases on Sedi.ca.  How else can FFH repurchase without reporting them on Sedi.ca ?   Or am I not seeing them for a different reason?
Title: Re: Fairfax 2018
Post by: ourkid8 on October 17, 2018, 03:03:52 PM
I am dying to find out if they got more aggressive in buying back their stock during this selloff.  Earlier today, I just bought a large slug of stock at usd$501.  (I couldn't help myself)   I am very very pleased they repurchased close to half a billion in stock in the last year.  I definitely was not expecting that!!!



Excellent buy back prices!

While many do not pay attention to buy backs it is the secret math to a high share
Price over the longer term. Fairfax has reached critical mass....and I believe will follow Singleton’s Teledyne model as long as we are cheap.