Is Rivett any good at investing? He’s a lawyer by background. IIRC he was in charge of Fairfax’s private investments and that didn’t go well.
I'm constantly confused by this comment about how Fairfax's "private" investments have not done well. Before, the criticisms used to be how their insurance businesses were awful...but since they are all writing below a 100% CR, now everybody says how awful their private investments are. Are they great...no...but if you look at the entirety of Fairfax's private investments (including insurance and non-insurance businesses), they have done perfectly fine over time based on the target they are trying to hit on annualized investment return. Cheers!
Lumping insurance and non-insurance together merely obscures what Fairfax is good at, and what they're not.
Their record on the insurance side is outstanding. They have done wonderfully in Lombard, First Capital, Gulf, probably Digit, and others. This is why I disagree with SJ on the "shithole countries" investments. Brazil in particular may grow to be another home run. In fact if I have any criticism it's that they don't do more - for example I would think Digit's model could be exported to Africa, Latin America, and the rest of Asia, and Fairfax has the footprint to do this.
However, their record on the non-insurance side appears to be dire. There is basically no reporting, so it is hard to tell. But in aggregate the private businesses that are consolidated appear to be lossmaking (IIRC they report ebitda and interest costs and they sum to a negative). Past realisations have shown a couple of wins (Arbor, Ridley), but I don't recall anything that really moved the needle. The only big one (APR) was done at carrying value, which I think had been written down a little. I have (faint) hopes for Quantum, Boat Rocker, Praktiker, and maybe a couple of other little things, but I don't see any evidence of progress overall and there may be some real duds. As far as I can tell Fairfax have conspicuously failed to build a third (insurance, float, private) source of cash flows at a reasonable cost, as Markel and Berkshire have done. I would be delighted by evidence to the contrary, but without it I interpret the monetisation plan as an admission of failure. While I like the admission, the failure needs to be acknowledged.
Their investment results since inception...from the 2019 Letter:
Compound
Growth in Average Average Total
Book Combined Return on
Value per Share Ratio Investments
1986-1990 57.7% 106.7% 10.4%
1991-1995 21.2% 104.2% 9.7%
1996-2000 30.7% 114.4% 8.8%
2001-2005 (0.7)% 105.4% 8.6%
2006-2010 24.0% 99.9% 11.0%
2011-2016 2.1% 96.0% 2.3%
2017-2019 12.0% 99.8% 5.6%
Ok, fine...I'll compare both insurance and investments. As you can see, in the earlier years, Fairfax was getting great investment returns but insurance was not profitable. Insurance increased book value and float, but the quality of the insurance businesses needed improvement. Later, as investments didn't do as well, Fairfax had improved their insurance businesses dramatically.
So overall, Fairfax's investments have actually done very well...lackluster in the last decade, but really quite good overall. Whereas their insurance business has improved massively and is writing consistent business during that last decade plus. If they keep insurance underwriting where it is and modestly improve their investment results compared to the last decade, they are going to have tremendous growth in book value per share. Cheers!
