Author Topic: Fairfax Letter March 2014  (Read 47823 times)



VersaillesinNY

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Re: Fairfax Letter March 2014
« Reply #1 on: March 07, 2014, 04:57:40 PM »
Thanks for sharing.

Prem Watsa recommends watching the following BBC documentary:
"How China Fooled The World"
http://www.youtube.com/watch?v=HUSjMnmS5lI

NormR

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Re: Fairfax Letter March 2014
« Reply #2 on: March 07, 2014, 05:07:25 PM »
I appreciate Prem's enthusiasm!  While it's not a big thing, someone might want to kindly mention to him that less is often more when it comes to exclamation marks. 

TwoCitiesCapital

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Re: Fairfax Letter March 2014
« Reply #3 on: March 07, 2014, 05:19:58 PM »
I find the below notable:

1) Insurance and investment income  was 563M pretax in a mediocre environment (insurance market not particularly hard and interest rates relatively low). Keep in mind that the insurance end could double capacity. Insurance is going to be a much bigger piece of this company (even without hedges) and its very good progress to see these companies growing and becoming profitable

2) totally digging the increase in deflation hedges. I know this is a point of contentionon this board, and the hedges are unpopular, but this is precisely what makes my portfolio robust and anti fragile. Imagine if equity markets fell by 50-70% and Fairfax has billions in cash when it happens. the whole global QE, the moral hazard of bailouts, unprecedented amounts of debt, and the interconnectedness of the global financial system make me uneasy. Debts are generally being refinanced at lower rates which generally allows for, and encourages, more borrowing delaying the day of judgement. That just means when it does come it's that much bigger. Maybe there won't be a crisis and everybody gets along and manages massive loads of debt forever...but I guess I just don't have that much faith in people...and for good reason! I've lived my entire life surrounded by them!

3) I know it's pointless to say "what if", but had they not been hedged, they would have earned nearly $2B on a $9 billion market cap. I'm ok with those types of returns (and larger) once the generalized hedging ends. This is just a way for us to see the true earnings power that the company is capable of.


Parsad

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Re: Fairfax Letter March 2014
« Reply #4 on: March 07, 2014, 05:27:51 PM »
I appreciate Prem's enthusiasm!  While it's not a big thing, someone might want to kindly mention to him that less is often more when it comes to exclamation marks.

What do you mean, sir!!!!! 

I think he got that from me.  If he starts ending every paragraph with "cheers", then you can definitely blame me!!!!  Ooops!!  My bad!!!  Cheers!!!
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JoelS

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Re: Fairfax Letter March 2014
« Reply #5 on: March 07, 2014, 07:24:42 PM »
"At the end of 2013, we had approximately $734 per share in float. Together with our book value of $339 per share and $100 per share in net debt, you have approximately $1,173 in investments per share working for your long term benefit about 9% lower than at the end of 2012."

IF Fairfax can earn 5% on investments per share going forward and you pay today's price of $430/share, the implied return is 13.6%..


Liberty

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Re: Fairfax Letter March 2014
« Reply #6 on: March 07, 2014, 08:36:08 PM »
Thanks for posting the letter.

"Given our concern about financial markets and the excellent returns we achieved on our long term investments, we reluctantly decided to sell our long term holdings of Wells Fargo (a gain of 125%), Johnson & Johnson (a gain of 47%) and U.S. Bancorp (a gain of 135%)."

Wow. Didn't they say a couple years ago that these were core long-term holdings? Maybe I'm misremembering, I'll have to dig that up after I'm done. Still, I was surprised that they sold it all, especially Wells, a Buffett favorite.

Not necessarily bad if they redeploy the capital in even better things, but it's still surprising to me.
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ERICOPOLY

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Re: Fairfax Letter March 2014
« Reply #7 on: March 07, 2014, 10:21:06 PM »
They are concerned about the high stock market, so they sell things like Wells Fargo that aren't that high?

karthikpm

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Re: Fairfax Letter March 2014
« Reply #8 on: March 07, 2014, 10:28:20 PM »
The tone of this letter is the opposite of the cheery optimism Berkshire/ Warren Buffett have- is it conceivable that both could have excellent results? 

Watsa and Fairfax have a deep value approach that would make them sell at "fair value" , very different from Buffett's hold forever philosophy. They also buy very different companies .

PW was very bullish on how JNJ in the 2012 letter

"If P/E ratios revert back to their mean, shares of companies like Johnson & Johnson can provide compound
growth rates of 20%+ in the next decade"-  PE ratios arguably overcorrected- wonder if that caused them to sell these names

augustabound

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Re: Fairfax Letter March 2014
« Reply #9 on: March 08, 2014, 12:29:28 AM »
I appreciate Prem's enthusiasm!  While it's not a big thing, someone might want to kindly mention to him that less is often more when it comes to exclamation marks.

I thought I was the only one who noticed all these years.   ;D
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