Author Topic: Fairfax 2020  (Read 218316 times)

Pedro

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Re: Fairfax 2020
« Reply #220 on: April 28, 2020, 06:16:06 PM »
Wade Burton has had a 19.5% compound return over 10 years.  Just imagine how different FFH would look today if Wade had been the leader of the FFH investment team during this entire period.
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I've listened to Wade speak before. He's sharp.

How does a human with record like this stay in the bullpen when the starting pitching is hitting batters.  Give him the saddle and stay out of his way.

I don't imagine FFH shares make up a large % of his portfolio when you make a 19.5% compounded return over a decade.

It's impressive they've kept him.  I hope it is evidence of good culture  & the deep bench Prem talks about


Viking

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Re: Fairfax 2020
« Reply #221 on: April 28, 2020, 08:16:17 PM »
Viking

If we get deflation a) FFH has the deflation swaps and b) I think Iíd rather be in EM than DM. EM has the demographic advantage, plus it has higher inflation levels and therefore is more likely to have disinflation than deflation. Only the strong dollar would be an issue but EM is less exposed to the dollar than it used to be.

Why donít you like CSB? Funnily enough I was thinking yesterday that FFH has widespread EM bank exposure (CIB, UBN, CSB, plus some smalls and arguably Eurobank) and I suspect thereís a lot of knowledge that can be shared across them. EM banking is a great business and the opportunity technology offers to bank the previously unbanked is huge. I think we will see Fairfaxís banks create huge value over the next couple of decades.

Pete

Pete, if we get deflation it will be the result of a severe, likely global, recession. This will hit EM harder than DM. I think India is in a precarious position; last year their financial system had serious issues and my guess is they were not fixed. The current worldwide recession could not have come at a worse time. CSB might be a good bank; it is just in a very tough situation.

I do like CIBís long term track record but will be staying clear of EM stocks for now.

Having said all that, for those ok with high uncertainty, able to handle severe volatility and with a long term perspective there is likely lots of money to be made investing in EM stocks today. Just not a good fit for me :-)

petec

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Re: Fairfax 2020
« Reply #222 on: April 29, 2020, 12:50:49 AM »
Iím not so worried by the kind of short, sharp deflation you get in a big recession. First, that might just bring the deflation swaps to life. Second, I think a big recession is already priced into the EM stocks and currencies I look at. Third, there is a huge monetary and fiscal response. And fourth, itís possible EM comes out quicker and stronger than DM, as happened in 2010.

The other kind of deflation would be a long slow Japan-style one, caused by the weight of debt built up in successive crises. Thatís what Lacy Hunt argues for in the video recently shared on the Hoisington thread. If that happens it will be too slow for the deflation swaps, but Iíd expect EM to outperform DM significantly.

Separately re India, I think a lot has been done to solve the issues. The job is not complete but the problems are largely in the public banks (NPLs) and non-bank financials (liquidity). CSB is recently recapitalised and under new management and it might actually be a great environment for them to grow.
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Xerxes

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Re: Fairfax 2020
« Reply #223 on: April 29, 2020, 07:20:12 PM »
Pedro/KFS
I am not familiar of the team working their equities side. Do you know how much dollar value or percentage he is managing. high double digit is pretty impressive. Who knows maybe he was shorting Resolute Forest on leverage ?  for me the key is going to be the Q1 13F; i don't expect FFH loading up the truck during the drawdown. But I very much care about their position sizing of the two names that they chose to 'market' during the AGM: i.e. Exxon and Google. For me that would be key and indicative of new direction.

Based on a board member recommendation on a different thread, I listened to two Google Talk videos with Thomas Russo. Very interesting with his concepts of capacity to suffer. In some ways, that capacity to suffer applies to us FFH shareholders, I never expected major growth (have other growth engines in my portfolio); rather wanted a modest/steady but continuous growth.

Let's hope there is light at the end of tunnel.

petec

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Re: Fairfax 2020
« Reply #224 on: April 30, 2020, 01:16:50 AM »
Pedro/KFS
I am not familiar of the team working their equities side. Do you know how much dollar value or percentage he is managing. high double digit is pretty impressive. Who knows maybe he was shorting Resolute Forest on leverage ?  for me the key is going to be the Q1 13F; i don't expect FFH loading up the truck during the drawdown. But I very much care about their position sizing of the two names that they chose to 'market' during the AGM: i.e. Exxon and Google. For me that would be key and indicative of new direction.

Based on a board member recommendation on a different thread, I listened to two Google Talk videos with Thomas Russo. Very interesting with his concepts of capacity to suffer. In some ways, that capacity to suffer applies to us FFH shareholders, I never expected major growth (have other growth engines in my portfolio); rather wanted a modest/steady but continuous growth.

Let's hope there is light at the end of tunnel.

I think the % managed by Wade and his team is still relatively small (maybe 15%) but growing. Prem names about 12 members of this team in the letter including Wendy Teramoto who he describes as Wilbur Ross' right hand for 20 years. (Sam Mitchell is a notable absentee - I am not sure whether he is still at Fairfax.)

More importantly, it sounds (from the letter and the AGM call) as though Wade's team has an increasing influence on decisions made by Prem, Roger, and Brian. The sense I get is that we are about halfway through the handover to the younger team. It's taken a decade, and it'll take a decade more. But their influence is growing.

One thing I would say, though, is that Fairfax should not be in your portfolio for steady but continuous growth. That's Berkshire, or Markel. Prem, for all his faults, has always been explicit that results will be lumpy. That's just the nature of the kind of deep value investing they do.
« Last Edit: April 30, 2020, 01:21:06 AM by petec »
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Xerxes

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Re: Fairfax 2020
« Reply #225 on: April 30, 2020, 06:40:04 AM »
You are absolutely right on lumpy results.
While I always took note of that, somehow I failed to register that BRK had never said. Though they (BRK) have been sayings Ö we don't care about reported earning but we care about long term economic growth per share.

Speaking of which, is it safe to assume that the last time that lumpy side was to the upside was the 2008-09 short Ö and perhaps Odessy (don't know the full story there, but folks were talking about in this thread).

And also as the new generation takes over, I think that would mean less lumpiness Ö and more steady growth.

Xerxes

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Re: Fairfax 2020
« Reply #226 on: April 30, 2020, 06:44:09 AM »
Viking, my non-scientific but philosophical view is that the pendulum always swings back Ö

It may be rough for FFH, but I think both BRK and FFH had about the same peak-to-trough drop. FFH a bit more.
Just like FFH got a few large businesses impacted, BRK has a whole host of entities impacted as well (Coka Cola, Airlines, etc.).

They are both not investing heavily in equities in the dip it seems (from what we know); FFH b/c it cannot (perhaps), BRK because it doesn't want to.
I think as long as both names remain diversified within your own personal portfolio, that ought to do it.

I personally greatly admire the collection of old economy assets Fairfax India has.
EM will always be a challenge, Ö until it isn't a challenge anymore. Then people will flock back to India, they would call it "like investing in China in 2001" and that theme will go on, until pendulum swings back and it is no longer "like investing in China in 2001" etc. it is like investing in Chili in 2019. Unfortunately the pendulum swing happens over many years and it doesn't swing back in a way we can forecast.

I work in the aerospace industry for more than a decade; we have been doing well... our industry has been growing by this much X CAGR, i.e. Airbus pumping out +50 A.320 per month (I don't work for Airbus, but just an example), and that was baseline of all forecast Ö all was well, life was good Ö. well until suddenly it isn't (i.e. Covid).

Xerxes, you seem to have it all well thought out :-) i do own BRK. In all honesty, probably mostly just because i like Buffett. And the fact they have so much cash (ideal in the current environment). It is likely just a short term hold... i will be happy to sell for a quick 3-4% gain. Done it a couple of time already :-)

Fairfax India looks interesting. I do like some of the assets (but not CSB). But until i get some clarity regarding the path of virus i am going to get very selective (which means FIH will just stay on my watch list :-)

there is not much thinking on my side on my logic.
It is just that my view is that "it is never as good as it looks when things are good Ö and it is never as bad they look when things are bad".
We (be it investors, forecasters, industry participants) tend to take a snap shot of a great thing and project into the future, and when the bottom falls out, we tend to take a snapshot and also project it to the future, and call it structural change.

Always overshooting and undershooting
« Last Edit: April 30, 2020, 01:55:20 PM by Xerxes »

wondering

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Re: Fairfax 2020
« Reply #227 on: April 30, 2020, 06:46:28 AM »
Pedro/KFS
I am not familiar of the team working their equities side. Do you know how much dollar value or percentage he is managing. high double digit is pretty impressive. Who knows maybe he was shorting Resolute Forest on leverage ?  for me the key is going to be the Q1 13F; i don't expect FFH loading up the truck during the drawdown. But I very much care about their position sizing of the two names that they chose to 'market' during the AGM: i.e. Exxon and Google. For me that would be key and indicative of new direction.

Based on a board member recommendation on a different thread, I listened to two Google Talk videos with Thomas Russo. Very interesting with his concepts of capacity to suffer. In some ways, that capacity to suffer applies to us FFH shareholders, I never expected major growth (have other growth engines in my portfolio); rather wanted a modest/steady but continuous growth.

Let's hope there is light at the end of tunnel.

I think the % managed by Wade and his team is still relatively small (maybe 15%) but growing. Prem names about 12 members of this team in the letter including Wendy Teramoto who he describes as Wilbur Ross' right hand for 20 years. (Sam Mitchell is a notable absentee - I am not sure whether he is still at Fairfax.)

More importantly, it sounds (from the letter and the AGM call) as though Wade's team has an increasing influence on decisions made by Prem, Roger, and Brian. The sense I get is that we are about halfway through the handover to the younger team. It's taken a decade, and it'll take a decade more. But their influence is growing.

One thing I would say, though, is that Fairfax should not be in your portfolio for steady but continuous growth. That's Berkshire, or Markel. Prem, for all his faults, has always been explicit that results will be lumpy. That's just the nature of the kind of deep value investing they do.

If I remember correctly, Sam Mitchell retired. I can't remember if Prem mentioned it on a CC or a AGM

petec

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Re: Fairfax 2020
« Reply #228 on: April 30, 2020, 07:27:20 AM »
Speaking of which, is it safe to assume that the last time that lumpy side was to the upside was the 2008-09 short

They almost doubled BVPS between 2006 and 2009 so yes, those years were a bit special. Since then they booked decent gains in 2014, 2017, and 2019 as well, but didn't do much the rest of the time. So after doubling BVPS between 2006 and 2009, they grew it only 25% between 2009 and 2019. (Obviously shareholders also got the dividend.)

But that is the past. What matters is the future. As you say the new investment team may produce steadier performance. I don't really care. I am happy with lumpy - I just want a higher rate of compounding, and all we need for that is for Fairfax to avoid mistakes.

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TwoCitiesCapital

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Re: Fairfax 2020
« Reply #229 on: May 01, 2020, 08:55:15 AM »
With $835/share in float, $420/share in equity, and $337/share in debt - it's hard for me to come up with a case where returns aren't going exceptional @ $260/share.

That is $1500+/share earning you a return. 15% compounded from these depths only requires an annualized return of 2.5% on the float/debt/equity to get 15% ROIC for your dollars. Such a low bar! Particularly in an environment that is being disrupted where investment grade corporate debt and high-grade equities/preferred yield quite a bit more than that.