Fairfax 2020

[StubbleJumper]

Where's Exxon? I could have sworn he said Exxon on the call, even mentioned what the dividend was yielding at the time (I think 10%).

Prem did mention Exxon by name at the Annual Meeting conference call.  He made reference to a 10% dividend rate.  If they bought it in March and already sold it a few weeks later, they might have made a quick 20% or 25%.


SJ

[Xerxes]

Absolutely, he even referred to the exact same CNBC interview that the Exxon CEO was talking about the dividend. And I had watched that interview prior.

Funny thing when 13F came out last week, although I did not see Exxon I did see Chevron as part of their holding. And was just wondering if between Prem and his managers if there was a mistake on what exactly they bought. I hope that is not the case but with these guys losing money on their shorts in Q1 ... who knows what’s going in the black box. I hope that there is a perfectly good explanations for these snd that my biases are just biases.

Unrelated to 13F mishaps, buying Exxon and Chevron at their cyclical low is the right way to invest as a value investor. Buying Stelco at its cyclical high is a bad value investment as a value investor.. No margin of safety will protect you when the denominator “earning” collapses in a recession. In fact often times, (Not related to Stelco) the stock value drops less than the earning collapse, in which case, you actually get multiple expansion even as the absolute dollar value of your investment goes down and your ROI gets to the cleaners.

[Xerxes]

Good news is that as Resolute marches into oblivion it represents an ever smaller portion of the equity portfolio, so less damage going forward.

Bad news is that Resolute is not marked to market, so its quarter to quarter valuation never really hit the bottom line in a good or bad way.

Good news is that it has seen a few write offs and those had already hit the book, so unlikely to see more.

I never looked at Resolute earnings in the past ten years, no clue if the earning it contributed diminished in a massive way.

[Bryggen]

Where's Exxon? I could have sworn he said Exxon on the call, even mentioned what the dividend was yielding at the time (I think 10%).

Prem did mention Exxon by name at the Annual Meeting conference call.  He made reference to a 10% dividend rate.  If they bought it in March and already sold it a few weeks later, they might have made a quick 20% or 25%.


SJ

Could it be that they purchased after March 31st which is the current filing date? The call was few weeks after that, right? That could explain why it isn't showing.

[StubbleJumper]

Where's Exxon? I could have sworn he said Exxon on the call, even mentioned what the dividend was yielding at the time (I think 10%).

Prem did mention Exxon by name at the Annual Meeting conference call.  He made reference to a 10% dividend rate.  If they bought it in March and already sold it a few weeks later, they might have made a quick 20% or 25%.


SJ

Could it be that they purchased after March 31st which is the current filing date? The call was few weeks after that, right? That could explain why it isn't showing.

Yep, that would be a sensible explanation.  Of course, that would also mean that they are probably only ahead by 0-10% if they bought in April. I guess it's better than a kick in the pants.


SJ

[bearprowler6]

Where's Exxon? I could have sworn he said Exxon on the call, even mentioned what the dividend was yielding at the time (I think 10%).

Prem did mention Exxon by name at the Annual Meeting conference call.  He made reference to a 10% dividend rate.  If they bought it in March and already sold it a few weeks later, they might have made a quick 20% or 25%.


SJ

Could it be that they purchased after March 31st which is the current filing date? The call was few weeks after that, right? That could explain why it isn't showing.

Yep, that would be a sensible explanation.  Of course, that would also mean that they are probably only ahead by 0-10% if they bought in April. I guess it's better than a kick in the pants.


SJ

It is also possible that Fairfax did not buy Exxon and Prem misspoke. Something similar happened on a quarterly call not that long ago when Prem referred to Brookfield and yet no transaction involving Brookfield had occurred. I know I have been bashing Prem and the team at Fairfax quite hard recently however in my view it is warranted. It seems to me that Prem has failed as an effective communicator which has resulted in frequent situations such as this where investors do not really know what has gone on. Fairfax is no longer a small little truck insurer run by a bunch of investment professionals with a value investing bias. It is a multi billion dollar global enterprise that needs and quite frankly deserves a fully staffed and professional run Investors Relations team.

In addition to the poor investor communication my other concerns remain including too much debt, numerous long standing equity investments that are under water and not being dealt with and an aging management team with no obvious succession plan in place.

[Thrifty3000]

Where's Exxon? I could have sworn he said Exxon on the call, even mentioned what the dividend was yielding at the time (I think 10%).

Prem did mention Exxon by name at the Annual Meeting conference call.  He made reference to a 10% dividend rate.  If they bought it in March and already sold it a few weeks later, they might have made a quick 20% or 25%.


SJ

Could it be that they purchased after March 31st which is the current filing date? The call was few weeks after that, right? That could explain why it isn't showing.

On page 17 of the recent quarterly report it says:

"During the first quarter of 2020 the company entered into $676.3 notional amount of long equity total return swaps for investment purposes following significant declines in global equity markets in the quarter. At March 31, 2020 the company held long equity total return swaps on individual equities for investment purposes with an original notional amount of $1,138.3 (December 31, 2019 - $501.5)."

I have a hunch the Exxon investment was via a total return swap.

[Xerxes]

Thanks Thrifty
That would be awesome, though given that he was referring to the dividend, it kinda tells me he was thinking as an equity position and a contributor to his $1 billion interest/dividend target.

Those equity swap seem like an interesting way to take a directional bet on the market with minimum upfront outlay, but if a market bounce is your bet, I think the swap are best employed against the overall market, rather than individual names. What is the point of doing that unless you were doing on technology "stay-home" specific names.

Anyways, these swaps are completely outside my plain vanilla area of expertise, not that I am an expert in plain vanilla investing either.

but I do know common sense.

[Thrifty3000]

Thanks Thrifty
That would be awesome, though given that he was referring to the dividend, it kinda tells me he was thinking as an equity position and a contributor to his $1 billion interest/dividend target.

Those equity swap seem like an interesting way to take a directional bet on the market with minimum upfront outlay, but if a market bounce is your bet, I think the swap are best employed against the overall market, rather than individual names. What is the point of doing that unless you were doing on technology "stay-home" specific names.

Anyways, these swaps are completely outside my plain vanilla area of expertise, not that I am an expert in plain vanilla investing either.

but I do know common sense.

A total return swap entitles the buyer to receive payments for capital gains and dividends (the total return).

https://www.investopedia.com/terms/t/totalreturnswap.asp

[Cigarbutt]

...I hadn't seen the article from Insurance Journal, so that is interesting in particular.  A couple of the more elaborate industry level loss estimates gives a bound for Zenith.  It looks like perhaps 16 loss points, before reinsurance and government funding, might be the reasonable estimate, with a bound of perhaps 50 loss points.  So, for an outfit like Zenith that writes $750m of premium, that would be maybe ~$120m before reinsurance and government funding, but possibly as much as $375m .  As you said, it's probably not an existential question, but it's curious that no provision was taken in the first quarter.
SJ

Relevant follow-up about potential costs (workers comp in California) which is important for Zenith. The ongoing development (not in the sense of recognized reserve development but in the sense of the social inflation threat) is definitely positive. Absent future adverse legislation, costs appear more and more manageable. Even if there is unusual flexibility to submit claims, Zenith will have to opportunity to rebut the claims and influence case law. It appears that Zenith will be able to report reasonable estimates in the coming quarters.
https://www.wcirb.com/sites/default/files/documents/rb-covid19-cost_impact_of_governor_executive_order_0.pdf