Fairfax 2020

[StubbleJumper]

Unless I am reading wrong book value had a paltry 3% bounce up of March 31 lows.

The net investment portfolio loss of $1.3 billion at the end of Q1, reverses by half, for the six months period.

Did I read this right?  On page 11 of the Q2, the stock investment portfolio was valued at $3.8 billion, but on page 15 the net gains on common stocks (realised and unrealised combined) was $130m.  Didn't the S&P rise by like 18 or 20% during the quarter?

Am I missing something obvious?


SJ

[Xerxes]

you are exactly right !

A paltry bounce back both on the bond and common stock portfolio, purely from a realized/unrealized capital gain/loss point of view.
That explains the mediocre 3% bounce back on the book, in turn.
494 million return on bonds portfolio of ~$17 billion + 130 million returns on the common stock portfolio of 3.8 billion

The crown jewels* are, however, grouped under the Associates (~$4.6 billion in value). For, those unless there is an impairment charge, you wont see the their stock movement captured in page 15, I believe. But overtime, one should see FFH's portion of earning to do better if those associate perform better. 

I should state however that one-quarter of S&P500 is made of BigTech/FANG, and the aggregate bounce back of the BigTech lifted the S&P500 far better than Blackberry powerhouse bounce back did within the FFH common stock portfolio. If you are competing against S&P500, you need either of the following two things: (1) either you got the genius to do without Big Tech in the portfolio and still do really well or (2) have at least as much Big Tech as the index, and you can get creative on the remaining 3/4 of the portfolio.

*crown jewels net of Resolute, as RFP is no jewel let alone a crown jewel

[bizaro86]

I would say its a bit concerning that they managed to lose money (significantly) on both the long and short side. Realized plus unrealized losses of $821.9 MM for the long side, and $222.4 MM for the short side. Should be making money on one side of a long-short book...

[Bryggen]

I would say its a bit concerning that they managed to lose money (significantly) on both the long and short side. Realized plus unrealized losses of $821.9 MM for the long side, and $222.4 MM for the short side. Should be making money on one side of a long-short book...

That is for the first six months of the year, right?
Making money in 6 months during a pandemic? Really?
I am stealing Parsad's favourite: cheers!

[Xerxes]

I would say its a bit concerning that they managed to lose money (significantly) on both the long and short side. Realized plus unrealized losses of $821.9 MM for the long side, and $222.4 MM for the short side. Should be making money on one side of a long-short book...

$821 million is over 6 months.
For Q1 the investment loss was about $1.3 billion, half of which got recouped by this quarter $600 or so investment gain.
So, net, we are at the $821 million mark for the first six months.

I don't expect much mark-to-market bounce back on BV from the common stock portfolio. This would have been the peak on mark-to-market bounce back I think.
It will be up to the insurance business, capital gains on the bond portfolio and earning pickups from Associates to build up the BV going forward I think.

[Xerxes]

I would say its a bit concerning that they managed to lose money (significantly) on both the long and short side. Realized plus unrealized losses of $821.9 MM for the long side, and $222.4 MM for the short side. Should be making money on one side of a long-short book...

That is for the first six months of the year, right?
Making money in 6 months during a pandemic? Really?
I am stealing Parsad's favourite: cheers!

Yes, during the pandemic.

[bizaro86]

I would say its a bit concerning that they managed to lose money (significantly) on both the long and short side. Realized plus unrealized losses of $821.9 MM for the long side, and $222.4 MM for the short side. Should be making money on one side of a long-short book...

That is for the first six months of the year, right?
Making money in 6 months during a pandemic? Really?
I am stealing Parsad's favourite: cheers!

The point of a long-short book is for gains on the shorts to offset losses on the longs when unexpected bad things happen (for example, a worldwide pandemic). If your shorts aren't making money (to offset losses on longs) during an event like that, maybe not doing them would be a better choice?

Or am I missing something here? If so, I'd love to know what it is...

[Parsad]

I would say its a bit concerning that they managed to lose money (significantly) on both the long and short side. Realized plus unrealized losses of $821.9 MM for the long side, and $222.4 MM for the short side. Should be making money on one side of a long-short book...

That is for the first six months of the year, right?
Making money in 6 months during a pandemic? Really?
I am stealing Parsad's favourite: cheers!

The point of a long-short book is for gains on the shorts to offset losses on the longs when unexpected bad things happen (for example, a worldwide pandemic). If your shorts aren't making money (to offset losses on longs) during an event like that, maybe not doing them would be a better choice?

Or am I missing something here? If so, I'd love to know what it is...

They are long on value stocks and short tech stocks.  So naturally, they haven't seen significant gains on the long side and they've suffered on the short side.  They will see their gains when tech stocks correct as main street returns to normal business and tech stocks get priced closer to reality.

Blackberry has barely moved...Fairfax India has barely moved...Atlas Corp (which is just killing it during a pandemic) has barely moved...and they are sitting on a ton of cash and bonds (which way have interest rates moved). 

So I think the fact that insurance is doing so well, even with significant insurance losses, is why Prem has tipped his hand and expressed his expectations to the general market with his $150M stock buy. 

Insurance despite the pandemic is doing fantastic and they've indicated pricing pressure is here...and when their investment portfolio turns as market sentiment eventually and inevitably turns to value stocks...Fairfax will see book value increase significantly!   We've seen it before, and we'll see it again.  Cheers!

[StubbleJumper]

Q2 2020 Conference Call Transcript:  https://seekingalpha.com/article/4362912-fairfax-financial-holdings-limited-frfhf-ceo-prem-watsa-on-q2-2020-results-earnings-call?part=single

SJ

[Xerxes]

Thanks
I think it was a good call.
No question about TorStar or Fairfax Africa's sale.

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Funny question from an individual investor, who confused Exxon and Chevron with Enron and Chevrolet. I listened to the audio, he actually said Enron and Chevrolet.

"Okay. And the second question is the stocks that you guys bought in March like Enron, Chevrolet, Google, have you guys sold any of those positions, or do we have to wait till the next quarterly filings to see those?"

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Anybody understands this statement: "The losses were principally comprised of incurred but not reported losses that represented on a net basis 70% of the COVID-19 losses reported."

is that like how banks do loan losses provisions. ? what does it mean incurred but not reported.