Author Topic: Fairfax2019  (Read 58014 times)

petec

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Re: Fairfax2019
« Reply #50 on: May 05, 2019, 09:18:19 AM »
Given that Fairfax and Hamblin Watsa is quite dependent on human capital. Perhaps the perspective of share dilution could be viewed as growth/succession cap ex to allow the company to continue operating into the future.

Furthermore, since Prem is the largest shareholder, any share dilution is also dilution of his proportion as well.

Certainly, long-dated options can have the possibility of incentive malalignment. What long-term incentive structure could fairfax put in place to help transition to the next generation and align them with the common shareholder?

My answer would be helping them purchase shares in the market, which Fairfax does a lot of (see annual letters).

As I say I have no issue with awards, but Iíd like to know more about the conditions and likely rate.

No issuances do not dilute Premís votes.
« Last Edit: May 05, 2019, 10:16:03 AM by petec »


shalab

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Re: Fairfax2019
« Reply #51 on: May 05, 2019, 09:48:09 AM »
As someone posted earlier, FRFHF returned 7% since 1998 nowhere near the 15% that is being promised every year. Yet, many people follow the person like a messiah (not unlike BH) justifying every action and statement even though it is not rational.

I like to follow their India investments as I own thomas cook. Also - I like to hunt for investment opportunities in India. However, FRFHF itself is a heavily leveraged company, even at the holding company level. They have 40B in investments and 11B in shareholder equity. The fact that they have been able to not generate returns in double digits despite such leverage should tell something.

Given that Fairfax and Hamblin Watsa is quite dependent on human capital. Perhaps the perspective of share dilution could be viewed as growth/succession cap ex to allow the company to continue operating into the future.

Furthermore, since Prem is the largest shareholder, any share dilution is also dilution of his proportion as well.

Certainly, long-dated options can have the possibility of incentive malalignment. What long-term incentive structure could fairfax put in place to help transition to the next generation and align them with the common shareholder?

My answer would be helping them purchase shares in the market, which Faurfax does a lot of (see annual letters).

As I say I have no issue with awards, but Iíd like to know more about the conditions and likely rate.

No issuances do not dilute Premís votes.

petec

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Re: Fairfax2019
« Reply #52 on: May 05, 2019, 10:25:45 AM »
As someone posted earlier, FRFHF returned 7% since 1998 nowhere near the 15% that is being promised every year. Yet, many people follow the person like a messiah (not unlike BH) justifying every action and statement even though it is not rational.

I like to follow their India investments as I own thomas cook. Also - I like to hunt for investment opportunities in India. However, FRFHF itself is a heavily leveraged company, even at the holding company level. They have 40B in investments and 11B in shareholder equity. The fact that they have been able to not generate returns in double digits despite such leverage should tell something.

I think the days when anyone thought Prem was a messiah are long gone, and the idea that anyone on here tries to justify every action is laughable - the amount of criticism and invective over the last 5-odd years has been immense. The question is whether it is overdone, which it might be for two related reasons: 1) despite the clear failures on the investing side Prem has put together an impressive set of assets and people, and 2) people and organisations learn, and this one is clearly changing. Therein may lie the opportunity, for a value investor. We will find out.

BTW anyone who thinks of the 15% target as a promise is a moron.

Would you mind elaborating on your thesis for Thomas Cook? Obviously its been a home run, but only (it seems to me) because of Quess. Within the legacy business as far as I can tell profits on the forex side have collapsed and pricing on the travel side have been squeezed by OTAs. I like the various deals (Kuoni etc), but from what I see FCF hasn't grown since Fairfax bought it. However I have only glanced at it so I could be wrong on all of the above. Please correct me if so.

shalab

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Re: Fairfax2019
« Reply #53 on: May 05, 2019, 07:22:19 PM »
Regarding the 15% target, I know many people believe it as shown in the only "notes" shared from the meeting. May be it is time for Prem to become non-executive chairman and have his kids and Pual Rivett talk in the annual meeting, shareholder letters.

Regarding Thomas Cook, you are right about the forex, travel businesses. However, ordering through the internet is still not common in India (from what I understand) and brand names still have a lot of cachet. In Thomas Cook case, one has to look at P/B - not cashflows as it is difficult to calculate/estimate. I bought it when it was roughly 20% lower.


I think the days when anyone thought Prem was a messiah are long gone, and the idea that anyone on here tries to justify every action is laughable - the amount of criticism and invective over the last 5-odd years has been immense. The question is whether it is overdone, which it might be for two related reasons: 1) despite the clear failures on the investing side Prem has put together an impressive set of assets and people, and 2) people and organisations learn, and this one is clearly changing. Therein may lie the opportunity, for a value investor. We will find out.

BTW anyone who thinks of the 15% target as a promise is a moron.

Would you mind elaborating on your thesis for Thomas Cook? Obviously its been a home run, but only (it seems to me) because of Quess. Within the legacy business as far as I can tell profits on the forex side have collapsed and pricing on the travel side have been squeezed by OTAs. I like the various deals (Kuoni etc), but from what I see FCF hasn't grown since Fairfax bought it. However I have only glanced at it so I could be wrong on all of the above. Please correct me if so.

Cigarbutt

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Re: Fairfax2019
« Reply #54 on: May 15, 2019, 06:00:32 AM »
On November 3rd 2016, FFH sold 90% of their long-dated US Treasury bonds and, shortly thereafter, removed their equity hedges.
The expectations was for long term rates and stocks to go up.
https://www.forbes.com/sites/antoinegara/2016/11/11/canadian-billionaire-prem-watsa-nailed-the-trump-treasury-trade-and-is-bullish-on-stocks/#2ebe1ef257b6

As of today, after 2.5 years, long term rates are at the same level as on the selling date and the R2000 is up by about 10 to 12%.

I think that deflationary forces will continue to "win" over inflationary forces despite increasingly polarized forces and, for better of for worse, that conclusion continues to contaminate the investment thought process.

petec

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Re: Fairfax2019
« Reply #55 on: May 15, 2019, 09:19:02 AM »
On November 3rd 2016, FFH sold 90% of their long-dated US Treasury bonds and, shortly thereafter, removed their equity hedges.
The expectations was for long term rates and stocks to go up.
https://www.forbes.com/sites/antoinegara/2016/11/11/canadian-billionaire-prem-watsa-nailed-the-trump-treasury-trade-and-is-bullish-on-stocks/#2ebe1ef257b6

As of today, after 2.5 years, long term rates are at the same level as on the selling date and the R2000 is up by about 10 to 12%.

I think that deflationary forces will continue to "win" over inflationary forces despite increasingly polarized forces and, for better of for worse, that conclusion continues to contaminate the investment thought process.
.

I agree deflation wins over inflation - until the next bout of QE. The choice between the two is ultimately a political one and inflation is politically preferable when thereís tons of debt about.

(Minor correction - they didnít say they were bullish on stock markets, but individual stocks.)

jfan

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Re: Fairfax2019
« Reply #56 on: May 15, 2019, 10:46:16 AM »
There was a wonderful podcast with David Zervos on the Sherman Show (Doubleline Capital). At the 22:00 minute mark, he explains that the deflationary forces in the US are secondary to demographics. Decreasing labor force growth reduces demand for goods coupled with technological progress creates this persistent milieu.

That being said, Torsten Slok (also on the Sherman Show) believes there is a bifurcated process. Goods are facing deflationary forces but local services that not fungible (eg health care) are experiencing inflation.


TwoCitiesCapital

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Re: Fairfax2019
« Reply #57 on: May 15, 2019, 01:22:06 PM »
On November 3rd 2016, FFH sold 90% of their long-dated US Treasury bonds and, shortly thereafter, removed their equity hedges.
The expectations was for long term rates and stocks to go up.
https://www.forbes.com/sites/antoinegara/2016/11/11/canadian-billionaire-prem-watsa-nailed-the-trump-treasury-trade-and-is-bullish-on-stocks/#2ebe1ef257b6

As of today, after 2.5 years, long term rates are at the same level as on the selling date and the R2000 is up by about 10 to 12%.

I think that deflationary forces will continue to "win" over inflationary forces despite increasingly polarized forces and, for better of for worse, that conclusion continues to contaminate the investment thought process.

I thought this for the longest time. It's why I was in Fairfax for the longest time. The equity hedges, the deflation derivatives, the hedged equities, etc.

Starting in late 2017, I started to realize that maybe I was wrong. Money velocity was rising the first time in years which seemed to confirm that inflation was on the upward trend. Rates had climbed 75-100bps and stock market was on fire after the tax rebates.

That being said - the weakness we've been seeing in equity markets, the ongoing trade war, the recent decline in money velocity again, and interest rates that have given up all of their gains might suggest I was premature to change my views.

I'm squarely back in the lower for longer camp after a brief 12 month hiatus.

wondering

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StubbleJumper

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Re: Fairfax2019
« Reply #59 on: May 21, 2019, 08:14:31 AM »