Depends when you want to start the clock I guess.
Just like it is not Prem's fault that covid-19 bended the market, the bounce back from here is not Prem's gain ... unless he TAKES advantage of it.
Beefing up core liquidity is not taking advantage. That is just being a good swimmer in a storm. That is as far as giving credit goes.
He is going to say it in Q2 results, "see guys I told you it will bounce back"; hell, Blackberry shares shooting up from oblivion should provided enough mark to market juice to help things out. As long as market doesn't think FFH will eat Blackberry whole, then down it goes.
To have a 15% on book value over the long term, he needs to have a massive lumpy return on the upside to undo the Lost Decade.
Or we could just take the clock based on the year the company was founded, to let the earlier years great gains average up the total compounded long term rate of return.
I am ok with 5-10 return on book value per annum.
What I like is the optionality.
That's precisely it. It absolutely depends on when you start the clock. People who are anchored in a US$500 stock price from two years ago look at FFH and wonder when they will see US$75/sh of EPS which would give an earnings yield of 15%. But, the decision to buy at $500 (or fail to sell at $500) was already made, so the $500 number and the $75 number are completely irrelevant. The most relevant thing today is the current stock price and FFH's prospective earnings...and US$250 was pretty cheap. Even today at US$316, it would likely work out well over a 5 year horizon.
I would like to also take the opportunity to make a couple of comments about the management of the past few months. I am first person to bitch and moan about poor management decisions, and I am possibly amongst Prem's loudest critics. But, so far in 2020, FFH management has pretty much done exactly what was needed:
-they proactively pre-released the direction and general magnitude of Q1 earnings
-they managed to float a debt issuance in a situation where credit markets were spooked and an equity issuance would have been highly dilutive
-they fully drew the revolver to proactively prevent the banker from screwing FFH by finding a reason to pull it
-they exploited widening credit spreads to bolster interest/dividend income
-they have continued to grow their book at seemingly profitable prices
-they have communicated their understanding of the pandemic impact on both underwriting and claims (they might ultimately be incorrect in their assessment, but at least they have been clear)
-so far there has been no sign of pulling from the "too hard pile," which is exactly what you want to see when securities valuations broadly declined.
Despite the many and varied mistakes that FFH management has made over the years (I have spilled much ink moaning about many of them), there is not really much that I can bitch about over the past 3 months.
SJ
