Author Topic: Fairfax 2020  (Read 196342 times)

petec

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Re: Fairfax 2020
« Reply #360 on: May 28, 2020, 01:25:49 AM »
We are talking about different things.

I agree about the overall record - that's why I'm a shareholder.

What I am criticising is their record in non-insurance private/control investing.

I think there is a difference in skillset between the various sources of value creation at Fairfax:
1) building and running (and sometimes selling) insurance companies
2) public market bond investing
3) public market equity investing
4) private/control equity investing

These are, roughly speaking, presented from best to worst in terms of what I think Fairfax are good at. By the time you get to (4), I don't think there is any evidence that they have created value in any real way, and I think the monetisation effort is an admission of that fact.
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cwericb

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Re: Fairfax 2020
« Reply #361 on: May 28, 2020, 06:26:41 AM »
So let’s get down to the nuts and bolts.

I would suggest that no one really cares what Fairfax did 10, 20 or 30 years ago. That’s history. We can quote figures portraying Fairfax as a great company, and I believe it has great potential, but the bottom line is that very few appear to agree.

In 2016 Fairfax share price was pushing $800 CDN. In fact, it was in that area as recently as June 2018.  Two years later the share price can’t seem to reach half that amount. And that is not even factoring in gains the general markets have made in the meantime.

This certainly doesn’t seem to indicate much respect for Fairfax’s performance. We may believe it is a great company but few seem to agree.

Fairfax used to have a large core of longtime shareholders but it would appear that a lot of those longtime shareholders have simply become fed up with the company’s performance and dumped their shares.

The question is: What is Fairfax doing to attract investors, what are they doing to boost the share price?

I ask this because I really don’t think Fairfax management gives a damn.
Politicians and diapers must be changed often, and for the same reason. - Mark Twain

StubbleJumper

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Re: Fairfax 2020
« Reply #362 on: May 28, 2020, 06:43:57 AM »
So let’s get down to the nuts and bolts.

I would suggest that no one really cares what Fairfax did 10, 20 or 30 years ago. That’s history. We can quote figures portraying Fairfax as a great company, and I believe it has great potential, but the bottom line is that very few appear to agree.

In 2016 Fairfax share price was pushing $800 CDN. In fact, it was in that area as recently as June 2018.  Two years later the share price can’t seem to reach half that amount. And that is not even factoring in gains the general markets have made in the meantime.

This certainly doesn’t seem to indicate much respect for Fairfax’s performance. We may believe it is a great company but few seem to agree.

Fairfax used to have a large core of longtime shareholders but it would appear that a lot of those longtime shareholders have simply become fed up with the company’s performance and dumped their shares.

The question is: What is Fairfax doing to attract investors, what are they doing to boost the share price?

I ask this because I really don’t think Fairfax management gives a damn.



No, the exodus of longtime shareholders occurred when Prem decided to reweight his multiple voting shares so that the Watsa family could retain full control of FFH despite having only a 7% economic interest.  That sad story took an interesting twist when Prem decided at the last minute to extend the voting period, presumably because he needed some more time to convince a few shareholders to vote in his favour.  Since that time, the FFH board of directors has been stacked with two Watsa children who have mediocre qualifications, and Prem seems to have created a job for one of the kids by hiving off a chunk of our investment portfolio for him to manage.  Long-time shareholders are not impressed by the governance abuses, and the investing results haven't been good enough for them to keep their shares while holding their noses.

There is a reason why a considerable portion of minority shareholders withhold their director vote for select FFH directors.


SJ

bearprowler6

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Re: Fairfax 2020
« Reply #363 on: May 28, 2020, 06:57:45 AM »
Before wading into today's discussion on Fairfax's poor record on its private market investments and the reasons for Fairfax's poor performance; I thought it worthwhile to post an article from today's Financial Post which features comments from both Rivett and Bitove on their recent Torstar acquisition:

https://business.financialpost.com/news/burning-cash-for-years-pair-acquiring-torstar-eye-growth-while-vowing-to-keep-progressive-values

Two points covered in the article are worth noting:

- Rivett/Bitove will not be engaging in a massive cost cutting exercise at Torstar.
- Fairfax will not be involved in any way going forward.

Its a good article and I wish them well. Too bad their enthusiasm and efforts for a turnaround were not applied during the course of the almost 10 years that Torstar shares were held by Fairfax.


petec

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Re: Fairfax 2020
« Reply #364 on: May 28, 2020, 07:47:53 AM »

The question is: What is Fairfax doing to attract investors, what are they doing to boost the share price?

I ask this because I really don’t think Fairfax management gives a damn.


Quite right too. Let them focus on running the company.
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Thrifty3000

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Re: Fairfax 2020
« Reply #365 on: May 28, 2020, 07:57:01 AM »
I think a dispassionate appraisal of Fairfax, assuming a continuation of the last decade’s performance as your base case, lands you somewhere in the neighborhood of:

- normalized earnings of $25 to $30 USD per share
- with earnings growth exceeding the pace of share dilution by a couple percentage points.

I’m certain Prem assumes a (much) higher growth rate. And, I’m intrigued by some of the new strategies in progress to achieve faster growth. Structuring specialized investment and management teams around targeted geographies and business models is interesting - and will create multiple channels for deploying capital to the highest return opportunities. For example, if Africa sucks while India thrives we’ll see much more capital concentrated in India than Africa over time (while many on this message board will be overlooking India and whining about Africa. Haha).

The Fairfax insurance operations are a cash machine, minting something like a hundred million dollars a month that has to be re-deployed. That’s not the world’s worst problem to have. If you or I had to deploy a hundred million a month for the next 10 years we’d probably make some billion dollar mistakes too.

The main questions are:

- are you comfortable with the baseline assumption
- if so, then what’s $25 to $30 per share - and growing - of passive, look-through, earnings worth to you (what will it likely be worth to others down the road)
- Are there better alternatives

The short answer is Fairfax is probably worth a good bit more than $270 USD.

bearprowler6

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Re: Fairfax 2020
« Reply #366 on: May 28, 2020, 08:02:09 AM »
We are talking about different things.

I agree about the overall record - that's why I'm a shareholder.

What I am criticising is their record in non-insurance private/control investing.

I think there is a difference in skillset between the various sources of value creation at Fairfax:
1) building and running (and sometimes selling) insurance companies
2) public market bond investing
3) public market equity investing
4) private/control equity investing

These are, roughly speaking, presented from best to worst in terms of what I think Fairfax are good at. By the time you get to (4), I don't think there is any evidence that they have created value in any real way, and I think the monetisation effort is an admission of that fact.

I think an examination of Fairfax's private/control equity investing activities would be a very worth while exercise. Performance in this segment of Fairfax's portfolio has been underwhelming at best. Why is that?

To answer this question I think we need to agree on the investments we are talking about. I assembled the following list after a quick review of the recent annual report----feel free to add names that I may have missed:

Retail Segment

-Golf Town/Sporting Life
-Toys R Us Canada
-Kitchen Stuff Plus
-William Ashley
-Praktiker (in Greece)

Other Segment

-AGT Foods
-Peak Performance (Bauer and Easton brands)
-Boat Rocker
-Rouge Media
-Davos Spirits
-Farmers Edge

Dexterra would have been listed under the Other segment however its recent merger with Horizons Logistics with Fairfax taking back shares of the resulting public company seems to take this one off the table.

My thoughts on the list of private investments:

-very heavily focus on retail
-none large enough to move the needle at the overall Fairfax level
-a number of them were decent turnaround/restructuring opportunities however do not make for very good long term cash generating holdings
-Praktikar (in Greece)---really---why bother?
-a number operate in industries requiring massive scale and investment (e.g., Boat Rocker) which Fairfax cannot provide
-Toys R Us Canada -- if the value was in the underlying real estate than steps should have been taken immediately upon completing the acquisition to realize on that valuu. One has to wonder why this was not done?
-Some offer good longer term value although the extent of that value is hard to assess: AGT, Farmers Edge

Overall I sense the private equity holdings are small, don't really offer much upside, are currently providing a poor return on invested capital, require considerable management time and attention and generally are operating in segments of the economy that have been hit very hard by Covid and will take years to recover.

Thoughts/comments of others?







petec

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Re: Fairfax 2020
« Reply #367 on: May 28, 2020, 08:14:46 AM »
We are talking about different things.

I agree about the overall record - that's why I'm a shareholder.

What I am criticising is their record in non-insurance private/control investing.

I think there is a difference in skillset between the various sources of value creation at Fairfax:
1) building and running (and sometimes selling) insurance companies
2) public market bond investing
3) public market equity investing
4) private/control equity investing

These are, roughly speaking, presented from best to worst in terms of what I think Fairfax are good at. By the time you get to (4), I don't think there is any evidence that they have created value in any real way, and I think the monetisation effort is an admission of that fact.

I think an examination of Fairfax's private/control equity investing activities would be a very worth while exercise. Performance in this segment of Fairfax's portfolio has been underwhelming at best. Why is that?

To answer this question I think we need to agree on the investments we are talking about. I assembled the following list after a quick review of the recent annual report----feel free to add names that I may have missed:

Retail Segment

-Golf Town/Sporting Life
-Toys R Us Canada
-Kitchen Stuff Plus
-William Ashley
-Praktiker (in Greece)

Other Segment

-AGT Foods
-Peak Performance (Bauer and Easton brands)
-Boat Rocker
-Rouge Media
-Davos Spirits
-Farmers Edge

Dexterra would have been listed under the Other segment however its recent merger with Horizons Logistics with Fairfax taking back shares of the resulting public company seems to take this one off the table.

My thoughts on the list of private investments:

-very heavily focus on retail
-none large enough to move the needle at the overall Fairfax level
-a number of them were decent turnaround/restructuring opportunities however do not make for very good long term cash generating holdings
-Praktikar (in Greece)---really---why bother?
-a number operate in industries requiring massive scale and investment (e.g., Boat Rocker) which Fairfax cannot provide
-Toys R Us Canada -- if the value was in the underlying real estate than steps should have been taken immediately upon completing the acquisition to realize on that valuu. One has to wonder why this was not done?
-Some offer good longer term value although the extent of that value is hard to assess: AGT, Farmers Edge

Overall I sense the private equity holdings are small, don't really offer much upside, are currently providing a poor return on invested capital, require considerable management time and attention and generally are operating in segments of the economy that have been hit very hard by Covid and will take years to recover.

Thoughts/comments of others?

I agree.

You missed Quantum, the McEwan Group, Blue Ant, Arctic Gateway (partly in AGT). I am sure I have missed some too.

Also, minor point but I think Peak Performance is the Bauer/Easton unit and Peak Achievement is the name for the merged Sporting Life and Golf Town. I may be wrong.
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Thrifty3000

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Re: Fairfax 2020
« Reply #368 on: May 28, 2020, 09:13:21 AM »
We are talking about different things.

I agree about the overall record - that's why I'm a shareholder.

What I am criticising is their record in non-insurance private/control investing.

I think there is a difference in skillset between the various sources of value creation at Fairfax:
1) building and running (and sometimes selling) insurance companies
2) public market bond investing
3) public market equity investing
4) private/control equity investing

These are, roughly speaking, presented from best to worst in terms of what I think Fairfax are good at. By the time you get to (4), I don't think there is any evidence that they have created value in any real way, and I think the monetisation effort is an admission of that fact.

I think an examination of Fairfax's private/control equity investing activities would be a very worth while exercise. Performance in this segment of Fairfax's portfolio has been underwhelming at best. Why is that?

To answer this question I think we need to agree on the investments we are talking about. I assembled the following list after a quick review of the recent annual report----feel free to add names that I may have missed:

Retail Segment

-Golf Town/Sporting Life
-Toys R Us Canada
-Kitchen Stuff Plus
-William Ashley
-Praktiker (in Greece)

Other Segment

-AGT Foods
-Peak Performance (Bauer and Easton brands)
-Boat Rocker
-Rouge Media
-Davos Spirits
-Farmers Edge

Dexterra would have been listed under the Other segment however its recent merger with Horizons Logistics with Fairfax taking back shares of the resulting public company seems to take this one off the table.

My thoughts on the list of private investments:

-very heavily focus on retail
-none large enough to move the needle at the overall Fairfax level
-a number of them were decent turnaround/restructuring opportunities however do not make for very good long term cash generating holdings
-Praktikar (in Greece)---really---why bother?
-a number operate in industries requiring massive scale and investment (e.g., Boat Rocker) which Fairfax cannot provide
-Toys R Us Canada -- if the value was in the underlying real estate than steps should have been taken immediately upon completing the acquisition to realize on that valuu. One has to wonder why this was not done?
-Some offer good longer term value although the extent of that value is hard to assess: AGT, Farmers Edge

Overall I sense the private equity holdings are small, don't really offer much upside, are currently providing a poor return on invested capital, require considerable management time and attention and generally are operating in segments of the economy that have been hit very hard by Covid and will take years to recover.

Thoughts/comments of others?

I agree.

You missed Quantum, the McEwan Group, Blue Ant, Arctic Gateway (partly in AGT). I am sure I have missed some too.

Also, minor point but I think Peak Performance is the Bauer/Easton unit and Peak Achievement is the name for the merged Sporting Life and Golf Town. I may be wrong.

It looks to me like they’re implementing a pretty clear strategy to improve overall ROI from their private companies and associates. They seem to be picking a leader in a given industry/region, and then seeking to merge like-companies under that leader to better manage/allocate the capital. Look at all the brands under Recipe now, Eurobank’s acquisition of Grivalia, and Seaspan/APR under Sokol. They’re basically using their influence to create mini-holding companies, with specialist managers that can recommend the best use of capital among the brands in their domain. I think the strategy was already starting to work at Recipe. Despite industry headwinds Recipe was shuttering failing locations, sharing best practices with lower performers, and reallocating capital to the winning concepts.

I think the whole purpose of this strategy is to get lots of business experiments into the hands of several different, proven, managers, so they can more quickly ramp up the winners while letting the losers dwindle. Theoretically these managers will have their ear closer to the ground in their various industries and be able to make acquisition recommendations, etc.

In a way, they’re taking the model they used to allocate capital among insurance subsidiaries, and expanding it to how they will manage private companies and associates going forward. (They did the same thing with investment management teams too.) It might be kind of brilliant.
« Last Edit: May 28, 2020, 09:18:26 AM by Thrifty3000 »

bearprowler6

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Re: Fairfax 2020
« Reply #369 on: May 28, 2020, 09:26:54 AM »
We are talking about different things.

I agree about the overall record - that's why I'm a shareholder.

What I am criticising is their record in non-insurance private/control investing.

I think there is a difference in skillset between the various sources of value creation at Fairfax:
1) building and running (and sometimes selling) insurance companies
2) public market bond investing
3) public market equity investing
4) private/control equity investing

These are, roughly speaking, presented from best to worst in terms of what I think Fairfax are good at. By the time you get to (4), I don't think there is any evidence that they have created value in any real way, and I think the monetisation effort is an admission of that fact.

I think an examination of Fairfax's private/control equity investing activities would be a very worth while exercise. Performance in this segment of Fairfax's portfolio has been underwhelming at best. Why is that?

To answer this question I think we need to agree on the investments we are talking about. I assembled the following list after a quick review of the recent annual report----feel free to add names that I may have missed:

Retail Segment

-Golf Town/Sporting Life
-Toys R Us Canada
-Kitchen Stuff Plus
-William Ashley
-Praktiker (in Greece)

Other Segment

-AGT Foods
-Peak Performance (Bauer and Easton brands)
-Boat Rocker
-Rouge Media
-Davos Spirits
-Farmers Edge

Dexterra would have been listed under the Other segment however its recent merger with Horizons Logistics with Fairfax taking back shares of the resulting public company seems to take this one off the table.

My thoughts on the list of private investments:

-very heavily focus on retail
-none large enough to move the needle at the overall Fairfax level
-a number of them were decent turnaround/restructuring opportunities however do not make for very good long term cash generating holdings
-Praktikar (in Greece)---really---why bother?
-a number operate in industries requiring massive scale and investment (e.g., Boat Rocker) which Fairfax cannot provide
-Toys R Us Canada -- if the value was in the underlying real estate than steps should have been taken immediately upon completing the acquisition to realize on that valuu. One has to wonder why this was not done?
-Some offer good longer term value although the extent of that value is hard to assess: AGT, Farmers Edge

Overall I sense the private equity holdings are small, don't really offer much upside, are currently providing a poor return on invested capital, require considerable management time and attention and generally are operating in segments of the economy that have been hit very hard by Covid and will take years to recover.

Thoughts/comments of others?

I agree.

You missed Quantum, the McEwan Group, Blue Ant, Arctic Gateway (partly in AGT). I am sure I have missed some too.

Also, minor point but I think Peak Performance is the Bauer/Easton unit and Peak Achievement is the name for the merged Sporting Life and Golf Town. I may be wrong.

It looks to me like they’re implementing a pretty clear strategy to improve overall ROI from their private companies and associates. They seem to be picking a leader in a given industry/region, and then seeking to merge like-companies under that leader to better manage/allocate the capital. Look at all the brands under Recipe now, Eurobank’s acquisition of Grivalia, and Seaspan/APR under Sokol. They’re basically using their influence to create mini-holding companies, with specialist managers that can recommend the best use of capital among the brands in their domain. I think the strategy was already starting to work at Recipe. Despite industry headwinds Recipe was shuttering failing locations, sharing best practices with lower performers, and reallocating capital to the winning concepts.

I think the whole purpose of this strategy is to get lots of business experiments into the hands of several different, proven, managers, so they can more quickly ramp up the winners while letting the losers dwindle. Theoretically these managers will have their ear closer to the ground in their various industries and be able to make acquisition recommendations, etc.

In a way, they’re taking the model they used to allocate capital among insurance subsidiaries, and expanding it to how they will manage private companies and associates going forward. (They did the same thing with investment management teams too.) It might be kind of brilliant.

That is an interesting take on what Fairfax is doing....and if accurate may prove beneficial to Fairfax's bottom line over the medium to longer term.

Sadly as a result of Covid many retail stores and restaurants will suffer and not be able to achieve a reasonable level of profitability in any reasonable period.

I am attaching an interview with Rivett from yesterday (for a retired guy he sures seems busy) where he addresses the difficulties at Recipe:

https://www.bnnbloomberg.ca/recipe-unlimited-chair-urges-landlords-to-play-ball-help-tenants-1.1441853