Author Topic: Is this patient investor flogging a dead horse with FFH? I Sell side discipline  (Read 5962 times)

investmd

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A dozen years ago bought into the FFH thesis of science of pricing insurance properly that generates float that can then be invested by astute people - the Warren Buffett of Canada philosophy. Have just kept accumulating shares. Looked to generally "buy the dips" , but add yearly, have bought as low as C$300's and as high as C$700's over about 12 years. Always waiting for the stock to outperform.

As a result of adding to the position for a dozen years, I have a large position (approx 7% of assets) in FFH with average purchase price of C$498 (today's price=$585). Overall, I haven't lost money, but have deployed a significant portion of assets for a long period of time that has compounded at a rate that is below my expectations (8-12%/year over long periods of time) even after taking in the annual dividend of USD10/share.

Does this patient value investor stay the course given the amount of time and resources deployed and hope against hope that Watsa does something to appreciate stock value?? Feeling particularly down after the always ethical, investor friendly, strong EQ personality of Watsa has taken a hit with recent news of court behaviour. This is superimposed by now getting tired of him always talking about 15% compound growth and not delivering.

Went through similar thought process with Chou Funds before finally making decision to part ways.

Am hurting/struggling with sell side discipline of stay the course (stock is undervalued, there will be an inciting event, Eurobank investment will appreciate, investment process will be improved, Indian investments will pay off, there will be significant stock buy back at these prices...) vs. is the nugget now better deployed elsewhere? Had big hopes for this position....

Would love to hear from some of the FFH bulls who have been passionate on this site. Thanks for your thoughts,




cwericb

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Canít help you but I certainly can sympathize.

I am in nearly the exact same situation as you are. Bought in about 2007 and have added since then. Got burned as a shareholder with Resolute/Fibrek. While some on this board insisted that Prem was doing right and Fairfax was living up to its motto of Fair & Friendly take overs. Yeah right! Wonder if they still feel that way. They were pretty adamant back then defending Prem.

I also have picked up some FAH & FIH a year or so ago. I still have a certain amount of confidence that the overall situation will improve because I think some of Premís investments will improve over time. I just hope I live that long. I would probably lighten up on FFH but capital gains tax is going to be painful and I am not in a position where I should incur any more taxable income this year.

My first purchase was at $228C and last was at $640C. Oh yes I still also have a fair amount of Chou Associates as well.
Politicians and diapers must be changed often, and for the same reason. - Mark Twain

Parsad

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It's usually at such depths, when investors start to reconsider their investment in Fairfax, when it is ultimately gets rewarded.  That being said, there are a handful of things that investors need to understand about Fairfax currently and going forward:

- It is no longer really just an insurance company...so any portfolio decisions made are going to have a significant impact...BB, Recipe, SSW, India, Africa, etc.
- It's insurance division is far superior to the insurance companies it owned in the past...this is more comparable to Berkshire now...well run, consistent, quality insurers.
- Prem has handed over significant responsibilities to others now...the team at Hamblin-Watsa is considerably different and will continue to change when Brian is gone...so results will be different over the next 20 years...equity decisions could be actually better, but I would expect bond/fixed income investments will be worse.
- Leadership is young outside of the old core guard...if they picked the team right, this could actually be a better investment than Fairfax itself was over the last decade, so you could be making a big mistake...Paul Rivett is as capable as Prem as a leader.
- As long as they get most of it right, the natural asset/equity leverage and long-term float will provide great returns to shareholders...so they don't have to shoot for the moon, just get 4% on the whole portfolio and write 100% CR.
- They are now the go to buyer in Canada for assets, alongside Brookfield, and their reputation gets them offers that many other investors wouldn't get.
- You don't need to put everything into Fairfax...if you have time to manage assets yourself, you can probably put part with them, part with someone else, and manage a portion yourself...as long as they are not overlapping strategies.

Cheers!

No man is a failure who has friends!

Gregmal

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It's usually at such depths, when investors start to reconsider their investment in Fairfax, when it is ultimately gets rewarded.  That being said, there are a handful of things that investors need to understand about Fairfax currently and going forward:

- It is no longer really just an insurance company...Its a portfolio of speculative and highly levered poo poo
- It's insurance division is hopefully superior to the insurance companies it owned in the past...this is more comparable to Berkshire now...stagnant, lagging, and rife with nepotism.
- Prem has given up now...the team at Hamblin-Watsa is considerably different and will continue to change when Brian is gone...so results cant possibly be worse over the next 20 years...equity decisions could be actually better, but I would expect bond/fixed income investments will be worse.
- Leadership is missing...if they picked a new team, this could actually be a better investment than Fairfax itself was over the last decade, so you could be making a big mistake...Paul Rivett is as capable as Prem as a leader.
- As long as they do a complete 180, the natural asset/equity leverage and long-term float will provide great returns to shareholders...so they don't have to shoot for the moon, just get 4% on the whole portfolio and write 100% CR.
- They are now the go to buyer in Canada for assets, alongside Brookfield, and their reputation gets them offers that many other investors wouldn't get.
- You don't need to put anything into Fairfax...if you have time to manage assets yourself, you can probably likely just throw darts at a board and do better.

Cheers!

Fixed!

petec

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It's usually at such depths, when investors start to reconsider their investment in Fairfax, when it is ultimately gets rewarded. 

This...

They don't have to shoot for the moon, just get 4% on the whole portfolio and write 100% CR.

...and this.

I love the fact that even on this board, which is named after FFH, literally everything the company does is questioned and there's no trust any more. That is necessary, but not sufficient, for FFH to be a good value investment starting from here. What may make it sufficient is that FFH doesn't need to shoot for the moon, and it owns a LOT of cheap stocks. I've never been more tempted to replicate the FFH portfolio PA. I take that as a good sign, although it may not be!

FD: I have held FFH continuously since 2008. I've had an OK time of it because I've generally bought well, and in some ways it did what I wanted (I partly held it for the hedges, because I don't hedge but wanted downside protection), but in other ways it obviously did not (BVPS growth has been dire).

petec

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One added thought. FFH have made some shocking mistakes. But it's also fair to say their style is out of style. This is a value board yet the mantra of most has become "buy quality growth". Of course we are all experienced investors impervious to bias, cough cough, so that has nothing to do with the fact that quality growth has performed like a banshee for the last decade. But quality growth ain't cheap no more, and one day the pendulum will reverse.

That said, I do worry that in buying value, FFH have also bought cyclical at the top of the cycle. Stelco, Seaspan, Eurobank, etc. I think the value here outweighs the risks (I own Seaspan and am considering Stelco) but it is a risk.
« Last Edit: October 01, 2019, 02:41:25 AM by petec »

cwericb

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"I partly held it for the hedges, because I don't hedge but wanted downside protection"

Ditto. But how much of that protection remains?

Deep down I still have faith that Fairfax will continue to grow and I like the fact that they are reasonable diversified. But the problem I see is that Prem and Fairfax have lost much of the respect they once had and that reflects directly on share price.
Politicians and diapers must be changed often, and for the same reason. - Mark Twain

petec

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Ditto. But how much of that protection remains?

None. Hence the use of the past tense.

I totally agree that Prem et al have lost respect. From my POV that's a good thing, because I no longer have to pay for that intangible. In reality I suspect they have got better as investors, for two reasons:
1) I believe they are learning, although this is painful to watch and impossible to prove.
2) I think their scale/contacts etc. allow them to do deals they likely couldn't do before, such as the SSW warrants which were a gift.




problem I see is that Prem and Fairfax have lost much of the respect they once had and that reflects directly on share price.

TwoCitiesCapital

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It's usually at such depths, when investors start to reconsider their investment in Fairfax, when it is ultimately gets rewarded.  That being said, there are a handful of things that investors need to understand about Fairfax currently and going forward:

- It is no longer really just an insurance company...Its a portfolio of speculative and highly levered poo poo
- It's insurance division is hopefully superior to the insurance companies it owned in the past...this is more comparable to Berkshire now...stagnant, lagging, and rife with nepotism.
- Prem has given up now...the team at Hamblin-Watsa is considerably different and will continue to change when Brian is gone...so results cant possibly be worse over the next 20 years...equity decisions could be actually better, but I would expect bond/fixed income investments will be worse.
- Leadership is missing...if they picked a new team, this could actually be a better investment than Fairfax itself was over the last decade, so you could be making a big mistake...Paul Rivett is as capable as Prem as a leader.
- As long as they do a complete 180, the natural asset/equity leverage and long-term float will provide great returns to shareholders...so they don't have to shoot for the moon, just get 4% on the whole portfolio and write 100% CR.
- They are now the go to buyer in Canada for assets, alongside Brookfield, and their reputation gets them offers that many other investors wouldn't get.
- You don't need to put anything into Fairfax...if you have time to manage assets yourself, you can probably likely just throw darts at a board and do better.

Cheers!

Fixed!

Lol

I tend to agree with Parsad to the extent the price point is attractive and they don't need to knock the lights out on investments to do well from here.

But where I consistently have a hard time is that I don't see how Fairfax does a consistent 4% going in the near-to-midterm.

Sure, they may get a nice one-off investment that boosts results in a year - but historically much of that has been given back the next year (see Blackberry and Eurobank) or is obviously not repeated annually.

A consistent 4% is going to be hard to achieve with their stock-bond mix and a portfolio of cyclicals with interest rates at 1.6%.

I still think the price needs to go lower, or rates higher, for Fairfax to make sense at this time.

Either that, or a market crash where I can have some certainty that cash can be out to work at greater than a 4% expected return.

Munger_Disciple

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Going forward I think Fairfax's insurance & reinsurance businesses will find it harder to generate profits in a low interest rate environment. Their float is not earning much which makes good underwriting even more important and harder to achieve (because of competition). Berkshire has an advantage over Fairfax in this regard. For example GEICO is a low cost growth machine in a commodity auto insurance business and they don't rely as much on earnings generated by float because GEICO float is short-tailed anyway. GEICO cost advantage stems from direct distribution channel. Berkshire is building their primary commercial insurance biz along similar lines and have reduced reinsurance exposure significantly in recent times due to insufficient premiums. Finally, Berkshire is no longer primarily an insurance company with a much stronger balance sheet and very low leverage compared to Fairfax.
« Last Edit: October 01, 2019, 10:46:15 AM by Munger_Disciple »