Author Topic: FFH Flat in Bull Market  (Read 7475 times)

StubbleJumper

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Re: FFH Flat in Bull Market
« Reply #20 on: January 06, 2019, 07:41:05 AM »
Heh, I wondered how long it would take you to react SJ ;)

Fair points all. My comment about communications is related to the fact that Iíve often had to go direct to the company to clarify comments made on calls etc, and often they didnít mean what people on here thought they meant. By definition thatís bad communications.

Serious question to which I donít know the answer: why is Howard Buffett qualified to be on the BRK board?


He isn't qualified to be on the BRK board.  That's a pipe-dream that WEB cooked up with the notion that it will perpetuate the BRK culture.  Nice dream, but IMO, that culture is toast after a couple of CEOs post-WEB.


SJ


rb

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Re: FFH Flat in Bull Market
« Reply #21 on: January 06, 2019, 09:50:13 AM »
Heh, I wondered how long it would take you to react SJ ;)

Fair points all. My comment about communications is related to the fact that Iíve often had to go direct to the company to clarify comments made on calls etc, and often they didnít mean what people on here thought they meant. By definition thatís bad communications.

Serious question to which I donít know the answer: why is Howard Buffett qualified to be on the BRK board?
He isn't qualified to be on the BRK board.  That's a pipe-dream that WEB cooked up with the notion that it will perpetuate the BRK culture.  Nice dream, but IMO, that culture is toast after a couple of CEOs post-WEB.

SJ
Howard Buffett did serve on a number of boards over a 20 year period. Some of them Fortune 500 companies. But it still smells like nepotism. At least he won't be wielding a shitload of multiple voting shares as well.

rb

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Re: FFH Flat in Bull Market
« Reply #22 on: January 06, 2019, 09:59:08 AM »
Well I don't share Gremal's writing style, but he has a point. Yes, mistakes were made. But the type of mistakes matter. For example, Berkshire made a mistake when they bought IBM. They broke even for a few years on that capital. Fairfax shorted a massive bull market. Different sort of mistake. If they didn't think that stocks were expensive, then why short? That's not value investing.

Then there's the individual picks. Then there's the macro stuff. I agree that there was a macro case to be made in 2010 that you could have a replay of the 1930s, albeit in a lighter way. But if you're still thinking that in 2014, then you're no good at macro. So did they swear it off? Did they say never again? No. In fact, in my opinion it was shameful the way they took the shorts off. Oh Trump get elected, stocks are good value now. Yea, after the S&P did a 100% run which they shorted.

These were big mistakes which should raise serious questions about what they're doing. They can't just be brushed off. Are they still really good capital allocators?  Do I want my capital to be handled in this manner?

I'm not saying that they're uninvestible. But they're trading around book. Why would I buy them at book when I can buy BRK at 1.3x book? (yes I know both books need to be adjusted). How many fiascoes happened at BRK?

I agree with much of this and also own BRK (but smaller, for various reasons including the impact of geographic exposure on my overall portfolio which has a lot of US as it is). FWIW:
- the short wasn't value, it was macro, and I think they were pretty clear on why they did it.
- you're right they have a very mixed macro record. They got the CDS bet and much of the bond stuff right, but the equity hedge and deflation swaps wrong (both direction and especially sizing).
- removing the hedge was the right thing to do and for the right reason. They said Trump would unleash animal spirits and he did. Holding the hedge through 2900 on the S&P would have been disastrous. They took the long bonds off at the same time for the same reason, a decision which has been lauded on here. They did NOT say stocks were good value - in fact they said they still had worries about valuations, and bought almost no stocks, focussing instead on converts.
- I would add to your list of questions "have they learned?". It will be interesting to look back on the next decade.

I'm not defending them here. The errors have been gargantuan. I'm just trying to help make the critique more accurate.
I wasn't trying to be inaccurate. Let me put it another way.

Thank God for shareholders that they took the shorts and the long bonds off. It saved them another world of pain. But I don't believe for one second their explanation. I think by that point they knew they screwed up and they just looked for a way to save face. If that was the case it was horrible behaviour.

If they really meant what they've said, then I really think that Fairfax is univestible. Because it means that they make investment decisions based on election results and feelings, not facts, figures, and rational thought.

Spekulatius

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Re: FFH Flat in Bull Market
« Reply #23 on: January 06, 2019, 03:25:11 PM »
I can live with terrible Communication when the execution is good. Terrible execution with terrible communicsti9n however is a real problem.

FWIW, I own several insurance co. with decent underwriting, and they can do high single digit ROE currently with zero equity exposure. FFH has ~$4.6B in equity exposure (this has been flat over the years with ~$12.5B in equity (numbers are from memeory, so may be a bit off), that’s roughly 37% of their equity. I am guessing they can’t go higher, unless their stocks actually start to appreciate so the addition mal equity exposure becomes “House money”, and not necessary to support the insurance business statutory capital, like is the case with BRK.
« Last Edit: January 06, 2019, 05:31:47 PM by Spekulatius »
To be a realist, one has to believe in miracles.

StubbleJumper

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Re: FFH Flat in Bull Market
« Reply #24 on: January 06, 2019, 03:42:50 PM »
Heh, I wondered how long it would take you to react SJ ;)

Fair points all. My comment about communications is related to the fact that Iíve often had to go direct to the company to clarify comments made on calls etc, and often they didnít mean what people on here thought they meant. By definition thatís bad communications.

Serious question to which I donít know the answer: why is Howard Buffett qualified to be on the BRK board?
He isn't qualified to be on the BRK board.  That's a pipe-dream that WEB cooked up with the notion that it will perpetuate the BRK culture.  Nice dream, but IMO, that culture is toast after a couple of CEOs post-WEB.

SJ
Howard Buffett did serve on a number of boards over a 20 year period. Some of them Fortune 500 companies. But it still smells like nepotism. At least he won't be wielding a shitload of multiple voting shares as well.


Well, more importantly, at BRK Charlie has been playing the role of providing the challenge function to ensure that WEB doesn't execute wacky ideas.  As a result, BRK has been managed well and conservatively.  In contrast, Prem very badly needs a board with strong external voices to tell him when he's being wacky.  Without that, Prem keeps rolling around in his little echo-chamber.

The other detail is that WEB owned more than 7% of the economic interest when Howard was appointed, and he didn't re-weight his multiple voting shares a year before engaging in nepotism.  In contrast, the Watsa family, which owns 7% of the economic interest, has three BoD positions.

Bad governance all around, but egregious in Prem's case.


SJ

Daphne

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Re: FFH Flat in Bull Market
« Reply #25 on: January 06, 2019, 06:47:20 PM »
Excellent analysis and IMO the critics sound more like trolls

shalab

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Re: FFH Flat in Bull Market
« Reply #26 on: January 06, 2019, 07:14:12 PM »
I am fairly comfortable with Howard Buffett on the board as a BRK shareholder - his integrity is beyond reproach. He has been compared to his grand father and father in that respect. 

However, there is very little information available about Watsa kids. One shouldn't compare Berkshire and Fairfax.

I am certain some folks would be offended if one compares Watsa and Biglari. I dont believe any comparison exists between Fairfax and Biglari.

Heh, I wondered how long it would take you to react SJ ;)

Fair points all. My comment about communications is related to the fact that Iíve often had to go direct to the company to clarify comments made on calls etc, and often they didnít mean what people on here thought they meant. By definition thatís bad communications.

Serious question to which I donít know the answer: why is Howard Buffett qualified to be on the BRK board?
He isn't qualified to be on the BRK board.  That's a pipe-dream that WEB cooked up with the notion that it will perpetuate the BRK culture.  Nice dream, but IMO, that culture is toast after a couple of CEOs post-WEB.

SJ
Howard Buffett did serve on a number of boards over a 20 year period. Some of them Fortune 500 companies. But it still smells like nepotism. At least he won't be wielding a shitload of multiple voting shares as well.


Well, more importantly, at BRK Charlie has been playing the role of providing the challenge function to ensure that WEB doesn't execute wacky ideas.  As a result, BRK has been managed well and conservatively.  In contrast, Prem very badly needs a board with strong external voices to tell him when he's being wacky.  Without that, Prem keeps rolling around in his little echo-chamber.

The other detail is that WEB owned more than 7% of the economic interest when Howard was appointed, and he didn't re-weight his multiple voting shares a year before engaging in nepotism.  In contrast, the Watsa family, which owns 7% of the economic interest, has three BoD positions.

Bad governance all around, but egregious in Prem's case.


SJ

Crip1

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Re: FFH Flat in Bull Market
« Reply #27 on: January 06, 2019, 07:36:29 PM »
FFH is a core pillar in my portfolio strategy. Have taking a buy and hold approach over past dozen years with ongoing purchases on dips. Full confidence in the ability to run an insurance business well and effectively deploy float and ability to take advantage of opportunities.
Today, I noticed that price on Jan 1, 2015 is essentially identical to price on Jan 1, 2019. Completely flat over 4 years of a "bull market". Yes, I'm picking the dates, as if we go over 5 years, it's up a total of some 30%. So over 5 years, annual return of 7%'ish is not terrible. However, 4 years is a significant time period. To be flat (with 2% dividend yield) for past 4 years is raising some questions for me about management going forwards and questioning my long term core nature of this investment. Watsa is always so positive, energetic and bullish. Recent thoughts on this Board included that FFH was undervalued, was well positioned for regime of increased interest rates and would/should be buying back shares.

Is there full confidence that this company can AVERAGE 7%/yr over any 10 year investment period? Means some flat 4 year periods and some 30%+ years. I'm fine with lumpy returns, but over time they need to at least meet market return with potential for alpha.


As a long-term shareholder, I feel your pain, completely. I do feel that the flat share performance over the past 4 years needs to be tempered to a certain extent by the understanding that share price does not necessarily follow intrinsic value. Taking a page from Buffet, intrinsic value does follow book value, more or less. From Y/E 2014 through the end of Q3 2018 (the last period for which we have measured Book Value) BV has increased just under 3.34%/year ($395/share to 451/share). Add the $10 divvy and youíre up to a little over 5.5%. Certainly not a compounding machine, and well behind the S&P 500, but certainly better than flat money.

-Crip

Dazel

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Re: FFH Flat in Bull Market
« Reply #28 on: January 06, 2019, 07:41:48 PM »

Itís fair to criticize poor performance....with that comes the emotional disappointment of a falling stock price and often the reaction of humans  to kick a star when they are down. NO ONE should invest in something they donít like or trust. Fairfax like all value investors have been hit by the new momentum driven central bank fueled asset market. I donít think anyone would be happy at Greenlight capital these days...they likely would like more communication there too.
Equity selection on the whole has been bad fair enough....hedges are the worst bet I have ever seen in there result they had many chances to cash out gains and limit losses they did not. They are the past...but the past sensational bets that make Fairfax one of the top performing stocks over the last 30 years more than off set them.
What matters where are we headed? If you donít trust Fairfax donít buy the stock...and is ok to publically voice these opinions so good on everyone for posting.

I have a major concern and that is the issuance of stock as bonuses or compensation...I would like some clarification from Prem in his letter....when you donít perform you should not get extra pay. I am comfortable with where they are and India will likely be a big win...Bradstreet once again dominated the bond market this year....looking forward to see what he is doing these days.

We will see what 2019 has in store...I would speculate it will be a very good year. That is my opinion and everyone else should make their own assessment.

If you have not been humbled by the stock market... then you have not been around long enough.

Cheers,

Dazel

Viking

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Re: FFH Flat in Bull Market
« Reply #29 on: January 06, 2019, 09:00:04 PM »

Itís fair to criticize poor performance....with that comes the emotional disappointment of a falling stock price and often the reaction of humans  to kick a star when they are down. NO ONE should invest in something they donít like or trust. Fairfax like all value investors have been hit by the new momentum driven central bank fueled asset market. I donít think anyone would be happy at Greenlight capital these days...they likely would like more communication there too.
Equity selection on the whole has been bad fair enough....hedges are the worst bet I have ever seen in there result they had many chances to cash out gains and limit losses they did not. They are the past...but the past sensational bets that make Fairfax one of the top performing stocks over the last 30 years more than off set them.
What matters where are we headed? If you donít trust Fairfax donít buy the stock...and is ok to publically voice these opinions so good on everyone for posting.

I have a major concern and that is the issuance of stock as bonuses or compensation...I would like some clarification from Prem in his letter....when you donít perform you should not get extra pay. I am comfortable with where they are and India will likely be a big win...Bradstreet once again dominated the bond market this year....looking forward to see what he is doing these days.

We will see what 2019 has in store...I would speculate it will be a very good year. That is my opinion and everyone else should make their own assessment.

If you have not been humbled by the stock market... then you have not been around long enough.

Cheers,

Dazel

Well said. I have stayed away from Fairfax for years because of different reasons. Today:
1.) their brand of value investing (more Ben Graham - cheap - than Buffett - cheapish quality)
2.) Prem is too promotional in communication
3.) extra cash will likely be used to buy back minority stakes in subs
4.) managements focus does not appear to be shareholders, but rather empire building

Having said all that, i do have Fairfax on a watch list. I am very impressed with the insurance side of the business they have built over the years. And yes, Bradstreet/bond investing has been very good.