2018 shareholders letter

[Spekulatius]

I am not concerned with the drop in holdco cash vs debt....they bought back more of their subs and they had a miserable year investing not unlike everyone else this time. I have argued and continue to argue their massive cash position and treasury position puts them in position to outperform the Markel’s of the world who got caught in quarter four of 2018. This has allowed them to fund AGT, Seaspan, Greek eurobank-real Estate merger funding if needed and to give Blackberry the courage to make a game changing acquisition and most importantly to me...to give Brian Bradstreet the ability to print cash (I like the corporate bond position and hope that he went bigger in quarter one...it is likely up 10 to 15%=$700m to $1b from dec 31). Fairfax and Prem’s gift are operating companies not stock picking. They are vultures....it has cost them lately but that’s how they built Fairfax. Bradstreet and the insurance companies give me enough confidence that they will create very solid operating earnings...the investing side needs to do very little to create big numbers from the 2018 low.

In quiet year this year...Fairfax should make $3b pretax.

MKL isn’t really cash constrainted, imo. Rather than adding bonds, how about reducing debt and specifically the preferred?. They pay about $350M in interest annually. I doubt adding some bonds at prevailing interest rates is effective vs just reducing interested rate expense ciampreferred or bond buybacks.

[shalab]

1-2 Billion after-tax is difficult without gains from investments. (let alone 3B). I would take out income (net realized gain from investments) from equity/stock sales. Where will the money come from? It is one to dream big and another to make it happen.

Then you would have to assume that there won't be further dilution.

Overall, I don't see chances very bright to get 15% on equity on a continuous basis. It may happen one year because of gains in stocks or investment gains.

There are simpler and better opportunities out there.

I am not concerned with the drop in holdco cash vs debt....they bought back more of their subs and they had a miserable year investing not unlike everyone else this time. I have argued and continue to argue their massive cash position and treasury position puts them in position to outperform the Markel’s of the world who got caught in quarter four of 2018. This has allowed them to fund AGT, Seaspan, Greek eurobank-real Estate merger funding if needed and to give Blackberry the courage to make a game changing acquisition and most importantly to me...to give Brian Bradstreet the ability to print cash (I like the corporate bond position and hope that he went bigger in quarter one...it is likely up 10 to 15%=$700m to $1b from dec 31). Fairfax and Prem’s gift are operating companies not stock picking. They are vultures....it has cost them lately but that’s how they built Fairfax. Bradstreet and the insurance companies give me enough confidence that they will create very solid operating earnings...the investing side needs to do very little to create big numbers from the 2018 low.

In quiet year this year...Fairfax should make $3b pretax.

[Dazel]

I am okay with $3b pretax probably $1.3b first quarter...will go from there.
I don’t agree with the crowd normally and have been wrong here before but not often...I am happy to be against the crowd.

Good luck to all!

[Dazel]

I am aware it is a bold call and certainly would not bet the house on it...but Fairfax is coming from a very low level on Dec 31 2018...why not have 2019 be a big year for Fairfax...they are certainly due.

[Spekulatius]

Pretty good commentary from the shareholder meeting
https://www.woodlockhousefamilycapital.com/blog/notes-from-toronto

[shalab]

Parsad said this in the other thread. I think that discussion belongs here.

FFH is definitely a viable business and is in a different league compared to BH or PGNT (ethics). Prem has achieved a lot and he doesn't need to compare himself to anyone. He and his family is set for generations as they virtually control FFH. However, FFH as an investment is a different story for folks trying to increase their own wealth by investing their hard earned dollars. I don't think there is a need to say they aim for 15% return or that they will emulate Singleton. One of the legacies of Singleton is that his family is one of the largest land owners in America. May be that is what Prem is alluding to when he says he will emulate Singleton - his family will be one of the richest in Canada for generations. These claims are misleading and unnecessary. If anything, it tarnishes his legacy.

He has been the chancellor of university of waterloo, has given money to charity (Dakshana foundation) etc. He can do more of these and his legacy will be safe.

There are many honest, capable managers in corporate america - one can invest in one or many of these companies or the entire group through an index. Over a lifetime, one can get very good results through the index, especially with dividend reinvestment.

Feel free to throw me and everyone else under the bus, but you jackasses should probably remove FFH from that list...Prem's given you nearly 35 years of outperformance.

Yeah there have been periods where he has under performed...even long stretches...but he's walked the walk and talked the talk better than anyone else other than Buffett.  Even Buffett had a tough time the last few years, and he's as close to perfect in the industry as anyone has ever seen!

So if your bar is Buffett and only Buffett, then that is a statistical population of one!  If your bar is ethical, honest investment company CEO's that you can trust your money with and have a good chance of outperforming for the long-term with interest aligned, it may be nominally higher and Prem would be in that group.  Cheers!

Thanks for posting.

Pretty good commentary from the shareholder meeting
https://www.woodlockhousefamilycapital.com/blog/notes-from-toronto

[Jurgis]

Pretty good commentary from the shareholder meeting
https://www.woodlockhousefamilycapital.com/blog/notes-from-toronto

Not bad. But I think there's a lot of anchoring to Watsa's 15% return goal.

[coc]

It doesn't strike anyone as strange that the company states a 15% IRR goal (over and over, year after year) when it hasn't achieved that in the last 5, 10, 15, 20, or 25 year periods?

It's one thing to call it "aspirational" but one could interpret that as "deeply misleading".

[petec]

It doesn't strike anyone as strange that the company states a 15% IRR goal (over and over, year after year) when it hasn't achieved that in the last 5, 10, 15, 20, or 25 year periods?

It's one thing to call it "aspirational" but one could interpret that as "deeply misleading".

This is a personal view, but the 15% is now being expressed as 95% CR and 7% return on investments. I see no issue in targeting those metrics over the long term. What they've achieved in the past doesn't have to be a guide to what they aspire to in the future, especially when they've sworn not to repeat the biggest mistake of all (the huge naked hedge).

That said, I couldn't care less that they target 15% and I find it surprising that people on here focus so hard on it. That's not a criticism, it's just that I have never had the sense that they manage towards the 15% goal in a bad way. Their mistakes are plenty, but they are so long term in approach that personally I don't think the mistakes stem from stretching to get to 15% - and that's the main negative of having a public goal. So I just ignore it, and focus on whether I think 95% and 7% are achievable (probably and probably not, respectively) and whether I'd be happy owning Fairfax at the current price if the ROE was say 10% over the long haul (yes with bells on).

[Viking]

Pretty good commentary from the shareholder meeting
https://www.woodlockhousefamilycapital.com/blog/notes-from-toronto

Thanks for posting. The author has other interesting posts :-)