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FFH Flat in Bull Market

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investmd:
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.

petec:
I’d look further than the stock price if I were you. Do you feel they’ve made good decisions? Created value? Surfaced value? Positioned themselves to create value in the future?

no_free_lunch:

--- Quote from: investmd on January 05, 2019, 07:28:18 AM ---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.

--- End quote ---

If you look at their performance historically, they did do well over 2007-2017.  However, just about any period shorter than they aren't hitting 7% (from a bvps + dividend perspective) so I sure wouldn't expect it going forward either.

obtuse_investor:
Let's use a gardening analogy.

From 2010-2016 (7 years); FFH management was getting ready for winter. They weren't planting any new plants. They were hoarding their seeds (cash) and keeping them safe (bonds). They were internally getting stronger (slowly but surely making their insurance operations profitable- lowering cost of capital). This was prudent management consider their weather forecast.

From 2017-current (2 years); FFH management suddenly realized that winter isn't coming any time soon. They cracked open their seed vault and started planting. And now they wait for the flowers to bloom, while the weather does it's own thing.

I don't want to digress into the validity of their forecast.

What I want to point out is that for ~7 years they didn't plant anything new. The meager BVPS growth we see right now is a result of that lack of investment. It takes a 2-5 years for the flowers to bloom, assuming winter doesn't actually arrive (and frost kills off some of those plants even before the buds formed).

rb:
They weren't just getting ready for winter. They were shorting the market. They basically looked at valuations in 2010 and said that stocks are richly priced.

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