Author Topic: Fairfax2019  (Read 39775 times)

petec

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Re: Fairfax2019
« Reply #10 on: January 19, 2019, 10:32:31 AM »


Petec,

They are under earning...50% cash and very poor equity performance....I expect that to change. I expect Hamblin Watsa too come through mostly Bradstreet and the bond side and higher yields. Insurance companies are world class and the other income line has quietly risen materially.


Yes, Iím aware of this but what I meant was how do you value it? P/earnings power? P/BV? P/TBV? Iím interested in how you think about this.

Also, you say Thomas Cook was a home run. Was it? Or was it just Quess?


Dazel

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Re: Fairfax2019
« Reply #11 on: January 19, 2019, 01:18:30 PM »
Shalab,

It is higher % of Fairfax common stock portfolio.



So Petec....I am buying for the upside of earnings power or PE. I believe that Fairfax is worth more dead than alive and that is my margin of safety.

So letís invert.

If I took all of Fairfax assets and had them run the same...but hypothetically Markel Gayner asset management ran the $40b investment portfolio starting September 30. What do you think the perception would be of earnings going forward?
Most of Markelís annual reports start with it was an excellent investment year....they are consistent and they are good. They command an above 20 PE and with an investment portfolio half the size of Fairfax and only 10% cash have earned such a great reputation that the stock trades for $2b more than Fairfax in the market.
The investment community would tabulate how much more money Fairfax could make if Markel Gayner were running investments if things were the same with $40b as opposed to $20b!!!! They would double their investment returns and wow there would be sooo much money made over the next 10 years they would be catching Berkshire...okay maybe that is a bit much but you get the point. The earnings power of the investment portfolio is there. The market puts a 0 value on it because it has lost faith in Prem and his team. The value at Markel would be significant.

HW needs to perform for the earnings power to show up....I am betting they will.

P.S I used September 30 because Markel only had $2b cash going into mini fall crash they would not have been able to do much...what do you think they would have done if they had $20b cash equivalents to go on a buying spree?




Dazel

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Re: Fairfax2019
« Reply #12 on: January 19, 2019, 02:59:03 PM »

Petec,

You are correct Quess was the home run.

TwoCitiesCapital

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Re: Fairfax2019
« Reply #13 on: January 19, 2019, 09:54:34 PM »

Just a follow up....there is lots of opportunity out there Shalab I agree...Fairfaxís advantage is they went into this sell off period with $28 billion of bonds and cash....of  note is that interest rates dropped substantially creating appreciation in their large treasury portion of those holdings and allowing them the opportunity to buy into a frozen bond market. In the past this has been their strength.

There was a window that if Fairfax acted that they would have seized large near term and long term profits in the investment portfolio....which has been the drag on Fairfax. So when you say there are many opportunities now which there are....many have had to wait for their holdings to appreciate to buy other things because they had little dry powder to buy into the worst December in almost 90 years.

Fairfax got a fast ball right down the middle of the plate ....

Did they hit that fast ball? Only they know that right now...but I donít have to pay for that probability right now because the stock is cheap enough that they will do fine if they did not hit that fast ball out of the park.

I'm not convinced they did. I would love it if Fairfax had locked in Treasury yields at 3.2% or rolled into credit in December, but neither seems REALLY compelling if you're waiting for a fat pitch.

3.2% was the highest rates in 7 years, BUT Fairfax believes we're in a period of unprecedented economic growth and rising rates...which makes 3.2% less compelling especially when compared to historical Treasuries. Did credit spreads widen in December? Yes. But they're still mostly tight by historical standards.

I think they'd have waited for higher rates and spreads before making a move given their outlook on valuations and rates.

StubbleJumper

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Re: Fairfax2019
« Reply #14 on: January 20, 2019, 08:03:59 AM »

Just a follow up....there is lots of opportunity out there Shalab I agree...Fairfaxís advantage is they went into this sell off period with $28 billion of bonds and cash....of  note is that interest rates dropped substantially creating appreciation in their large treasury portion of those holdings and allowing them the opportunity to buy into a frozen bond market. In the past this has been their strength.

There was a window that if Fairfax acted that they would have seized large near term and long term profits in the investment portfolio....which has been the drag on Fairfax. So when you say there are many opportunities now which there are....many have had to wait for their holdings to appreciate to buy other things because they had little dry powder to buy into the worst December in almost 90 years.

Fairfax got a fast ball right down the middle of the plate ....

Did they hit that fast ball? Only they know that right now...but I donít have to pay for that probability right now because the stock is cheap enough that they will do fine if they did not hit that fast ball out of the park.

I'm not convinced they did. I would love it if Fairfax had locked in Treasury yields at 3.2% or rolled into credit in December, but neither seems REALLY compelling if you're waiting for a fat pitch.

3.2% was the highest rates in 7 years, BUT Fairfax believes we're in a period of unprecedented economic growth and rising rates...which makes 3.2% less compelling especially when compared to historical Treasuries. Did credit spreads widen in December? Yes. But they're still mostly tight by historical standards.

I think they'd have waited for higher rates and spreads before making a move given their outlook on valuations and rates.


Well, locking in at 3.2% might have been the thing to do in retrospect, but in the short term it probably doesn't make that much difference.  My guess is that half the $27B of cash/bonds were rolled during 2018 and if they were rolled into 2-year treasuries, what would be the weighted average rate?  Would it have been around 2.7% over the year?  So the "penalty" for not having perfectly managed the bond port might be ~50 bps on $27B? 

It would clearly have been better to have nailed it perfectly, but I don't mind the small-ish penalty that they've taken on the theory that rates are headed north over the next five-ish years.


SJ

Spekulatius

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Re: Fairfax2019
« Reply #15 on: January 20, 2019, 09:03:30 AM »
Dazel - my estimate is that FRFHF has ~10% exposure to India. It is definitely huge compared to FAANGM's exposure to India. However, even old economy companies like BTI, CL, PG, UN have more exposure to India than FAANGM.

One can open a brokerage account in India (it is quite a hassle, time consuming but can be done), it will allow one to buy public companies in India. I expect Indian economy to grow to 5.5 trillion USD by 2030. At the same time US economy should be around 30-35 trillion USD. Canada would probably be at 2.5 trillion While India will do very well, the USA will also do well.


High GNP growth does not necessarily mean a strong stock performance. China for example still has high GNP growth, but a very poor stock performance for many years now. There are numerous other examples. I believe stock market performance depends much more on how this GNP growth is achieved and profitability metrics than the actual GNP growth
« Last Edit: January 20, 2019, 06:11:52 PM by Spekulatius »
To be a realist, one has to believe in miracles.

shalab

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Re: Fairfax2019
« Reply #16 on: January 20, 2019, 09:36:14 AM »
What you are saying is absolutely right - I like USA the best when it comes to the stock market - the managements are generally shareholder friendly and very efficient. It doesn't hurt that USA has some of the best companies on the planet. E.g:, Japan has several successful companies but several investors have written about their experiences there - stakeholders other than shareholders are given priority.

India's commercial and court system are borrowed from Britain. So they are similar to the US in many respects. People should see better returns in India compared to some of the other "emerging" markets. E.g:, there is a reason why many RE companies in Hong Kong trade for low valuations - fraud is rampant. This problem of dishonest promoters also exists in India, out of the 6000 companies listed in the exchange, only about a 1000 or so are investable.

Here is the story from one of the super investors for reference:

https://economictimes.indiatimes.com/markets/stocks/news/picking-leel-electricals-was-a-mistake-admits-porinju/articleshow/67519758.cms


Dazel - my estimate is that FRFHF has ~10% exposure to India. It is definitely huge compared to FAANGM's exposure to India. However, even old economy companies like BTI, CL, PG, UN have more exposure to India than FAANGM.

One can open a brokerage account in India (it is quite a hassle, time consuming but can be done), it will allow one to buy public companies in India. I expect Indian economy to grow to 5.5 trillion USD by 2030. At the same time US economy should be around 30-35 trillion USD. Canada would probably be at 2.5 trillion While India will do very well, the USA will also do well.


High GMp growth does not necessarily mean a strong stock performance. China for example still has high GNP growth, but a very poor stock performance for many years now. There are numerous other examples. I believe stock market performance depends much more on how this GNP growth is achieved and profitability metrics than the actual GNP growth
« Last Edit: January 20, 2019, 10:18:50 AM by shalab »

Dazel

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Re: Fairfax2019
« Reply #17 on: January 20, 2019, 01:50:42 PM »
Shalab,

First of all I have benefitted from your work here....thank you. I believe you discovered the share awards which I have a big problem with.

I see you on the Berkshire thread which is excellent discussing the value of the holdings and $100b cash....Berkshire holdings were decimated in the fourth quarter. Mr. Buffett has a$20b limit for holding cash.

So Buffett has $80b cash on a $500b market cap...and many are excited about his buys despite Apples massive losses as well as others.

My questions to you are

1. Are Prem and HW actually that bad that with $20b+ in cash on a $12b market cap and minimal losses in the fourth quarter in comparison to Berkshire....that you doubt they benefit from the opportunity more than Berkshire did?

2. What is Fairfax worth if Mr. Buffett is running the investment portfolio?
« Last Edit: January 20, 2019, 02:38:49 PM by Dazel »

shalab

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Re: Fairfax2019
« Reply #18 on: January 20, 2019, 03:16:06 PM »
I am a Prem and FRFHF fan. I made money in FRFHF and ORH (when it went private).  I bought Thomas Cook India at 196 INR last year. I follow all their investments India, Canada and the US. 

However, I liquidated my FRFHF positions recently and went into Berkshire.

The reasons are as follows:

1. FRFHF transparency (or lack thereof) - in BRK case, we clearly know how much is needed for insurance ops and how much isn't. We also know headquarters gets 400 MM of cash per week to invest in anyway they like. This translates to 21B per year. Apple drop is likely temporary and BRK will make 750MM per year from dividends increasing every year with their Q3 position. I even bought apple when it dropped to 140s.

   In FRFHF case, I don't believe their insurance operations are as sound - this is likely one of the reasons for hedges. Parsad suggested this a while back. So it is not clear how much cash is available to invest freely.

2. Berkshire investing FRFHF cash:
   It is not clear how much cash is available to invest - they have issued shares to raise money for acquisition(s). Parsad suggested in one of the threads on FRFHF to reduce leverage. They haven't done that. They also run hedge funds in India and Africa and pocket fees.  Where are the best ideas - is it in FRFHF or in the hedge fund? One of the suggestions by SD (which made the most sense) was that they are getting the next generation setup in the family business. Many people go to FRFHF annual meeting spending a bunch of money. Nothing of substance comes out either about the company or about its direction.

I believe there are better options available right now than FRFHF.

Shalab,

First of all I have benefitted from your work here....thank you. I believe you discovered the share awards which I have a big problem with.

I see you on the Berkshire thread which is excellent discussing the value of the holdings and $100b cash....Berkshire holdings were decimated in the fourth quarter. Mr. Buffett has a$20b limit for holding cash.

So Buffett has $80b cash on a $500b market cap...and many are excited about his buys despite Apples massive losses as well as others.

My questions to you are

1. Are Prem and HW actually that bad that with $20b+ in cash on a $12b market cap and minimal losses in the fourth quarter in comparison to Berkshire....that you doubt they benefit from the opportunity less than Berkshire did?

2. What is Fairfax worth if Mr. Buffett is running the investment portfolio?

Dazel

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Re: Fairfax2019
« Reply #19 on: January 20, 2019, 05:36:56 PM »

Thanks.

I donít have anything to add....the past is the past.

Fairfax needs to perform that simple.