Author Topic: Is it time to buy Fairfax?  (Read 9841 times)

FFHWatcher

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Re: Is it time to buy Fairfax?
« Reply #10 on: October 25, 2019, 10:56:02 AM »
Bought some more yesterday. Waiting for Q3 results which may include losses from Hurricane Dorian. Will double down if there is a significant drop.

^^^^^
This.

Not sure about the double down but the Dorian damage was massive in the Bahamas.  Not sure of the exposure there.  Maybe not statistically significant.  In the past, they have pre-announced significant hurricane losses but no announcement here.
On the plus side, SSW investment is looking up.  It is a bit depressing to see some of the 'value' industries they have been involved in over the years.  Many of these industries have been slowly killed and FFH has been in many.  Steel, Paper/forestry, Coal, Newspaper, choosing RIM/Blackberry instead of Apple, Retail Clothing, Retail - Toys (too early?).  It is hard to understand their investment decision-making process. 
It's almost as if they don't want to put any money into anything if it isn't $100M or more and they don't seem interested in businesses over $1-2B.


petec

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Re: Is it time to buy Fairfax?
« Reply #11 on: October 28, 2019, 01:28:07 AM »
It is a bit depressing to see some of the 'value' industries they have been involved in over the years.  Many of these industries have been slowly killed and FFH has been in many.  Steel, Paper/forestry, Coal, Newspaper, choosing RIM/Blackberry instead of Apple, Retail Clothing, Retail - Toys (too early?).  It is hard to understand their investment decision-making process. 


I just think they make life harder than it needs to be. When I think about the excitement on this board about BAC warrants a few years ago, which Fairfax didn't buy, despite the US clearly being prepared to debase its currency to avoid a depression and a general banking collapse - but then they were happy to buy a chunk of BKIR and Eurobank, in two economies that don't even control their currencies, as a result of whcih one of them slipped into a real depression...

Mind you there are others I see more sense in. Stelco has a huge amount of hidden value (read the last call). And I think they often go for things where some secondary asset backstops a lot of the value - eg land at Bangalore Airport, Stelco, Toys R Us.

As you say, SSW is working well (phew - one of my larger positions).
FFH MSFT BRK BAM SSW LNG IHG TFG CGT DC/A

Viking

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Re: Is it time to buy Fairfax?
« Reply #12 on: November 05, 2019, 04:39:08 PM »
With all the chatter about their investments, it is easy to forget that Fairfax is at its core an insurance company. Q3 results had lots of good news. Performance of the insurance businesses was better than expected. It is also growing net written premiums better than expected and this growth is expected to continue into  2020. This is likely why we are seeing the share price of FFH up nicely post earnings.

Fairfax appears poised to deliver operating earnings (underwriting plus interest and div) of about US$30/share moving forward. Shares are trading at US$440.

Regarding the investment portfolio I think it is fair to say that Fairfax is a company in transition. Results for 7 years (2012-18) were terrible. The good news is management appears to have learned some important lessons. It is likely they will remain deep value investors (high risk/high reward type plays); not what Warren Buffett does but this is FFH and not BRK. As an investor it is easy to get anchored in the big mistakes made and it becomes very difficult to look at the current situation in an unbiased way.

I am slowly working my way through each of Fairfax’s largest equity positions. It has been a very good exercise as i am learning lots. Most importantly, it is helping me construct a more accurate picture of this part of Fairfax’s business (and improving my understanding of Fairfax as a whole). I am seeing much more that i like (especially given where the various businesses are priced today) than what i dislike. If the global economy continues to chug along at current growth rates and avoids a recession in the next couple of years then Fairfax could see some nice outperformance on the equity side of its business. The US jobs report on Friday was above consensus and the US consumer continues to spend which suggests the US economy is chugging along.

We likely also have a management team that is very unhappy with how low the shares are trading today. Management likely views this as an opportunity. In the past management has been very creative in coming up with solutions to problems. This is a potential catalyst for current shareholders that i think is under-appreciated. (I am not suggesting Fairfax does something to pump up their stock price; rather, they do something to take advantage of the gift Mr Market is giving them.)

When i find an investment that looks undervalued it is ideal if there exists a few catalysts that, if they happen, could help drive the share price higher.

Here are four potential catalysts for Fairfax:
1.) hard market will drive operating earnings higher into 2020 (this one is happening...)
2.) global economy continues to chug along, equity positions perform well
3.) management team gets creative and takes advantage of low share price. The asset dispositions may help in this regard; these could be listed as a separate catalyst (as proceeds may be beneficial but not be used to but back stock).
4.) improved investor sentiment. I think it is safe to say that sentiment in Fairfax today is at an all time low today and the shares are priced accordingly. As Fairfax executes it will begin the process of healing with the investor community.
« Last Edit: November 05, 2019, 10:21:50 PM by Viking »

petec

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Re: Is it time to buy Fairfax?
« Reply #13 on: November 06, 2019, 01:10:25 AM »
With all the chatter about their investments, it is easy to forget that Fairfax is at its core an insurance company. Q3 results had lots of good news. Performance of the insurance businesses was better than expected. It is also growing net written premiums better than expected and this growth is expected to continue into  2020. This is likely why we are seeing the share price of FFH up nicely post earnings.

Fairfax appears poised to deliver operating earnings (underwriting plus interest and div) of about US$30/share moving forward. Shares are trading at US$440.

Regarding the investment portfolio I think it is fair to say that Fairfax is a company in transition. Results for 7 years (2012-18) were terrible. The good news is management appears to have learned some important lessons. It is likely they will remain deep value investors (high risk/high reward type plays); not what Warren Buffett does but this is FFH and not BRK. As an investor it is easy to get anchored in the big mistakes made and it becomes very difficult to look at the current situation in an unbiased way.

I am slowly working my way through each of Fairfax’s largest equity positions. It has been a very good exercise as i am learning lots. Most importantly, it is helping me construct a more accurate picture of this part of Fairfax’s business (and improving my understanding of Fairfax as a whole). I am seeing much more that i like (especially given where the various businesses are priced today) than what i dislike. If the global economy continues to chug along at current growth rates and avoids a recession in the next couple of years then Fairfax could see some nice outperformance on the equity side of its business. The US jobs report on Friday was above consensus and the US consumer continues to spend which suggests the US economy is chugging along.

We likely also have a management team that is very unhappy with how low the shares are trading today. Management likely views this as an opportunity. In the past management has been very creative in coming up with solutions to problems. This is a potential catalyst for current shareholders that i think is under-appreciated. (I am not suggesting Fairfax does something to pump up their stock price; rather, they do something to take advantage of the gift Mr Market is giving them.)

When i find an investment that looks undervalued it is ideal if there exists a few catalysts that, if they happen, could help drive the share price higher.

Here are four potential catalysts for Fairfax:
1.) hard market will drive operating earnings higher into 2020 (this one is happening...)
2.) global economy continues to chug along, equity positions perform well
3.) management team gets creative and takes advantage of low share price. The asset dispositions may help in this regard; these could be listed as a separate catalyst (as proceeds may be beneficial but not be used to but back stock).
4.) improved investor sentiment. I think it is safe to say that sentiment in Fairfax today is at an all time low today and the shares are priced accordingly. As Fairfax executes it will begin the process of healing with the investor community.

+1 to all of this.

As you work through the equity holdings, would you post summary writeups on the Fairfax stock positions page? I for one would be interested, having done the same exercise a while ago.

FFH MSFT BRK BAM SSW LNG IHG TFG CGT DC/A

gary17

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Re: Is it time to buy Fairfax?
« Reply #14 on: November 07, 2019, 10:57:52 AM »
ffh on fire today !

Viking

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Re: Is it time to buy Fairfax?
« Reply #15 on: November 07, 2019, 01:19:40 PM »
gary17, the stock was pretty hated going into earnings last week. It is up 10% in the past week (since they released results). Not sure what the driver is but we will see in the coming weeks if this move has legs; perhaps the technical picture is improving and this is helping. Fairfax stock does have a history of moving quickly when a new trend is established (up and down). Bottom line, with the stock trading at about BV it is still cheap.

TwoCitiesCapital

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Re: Is it time to buy Fairfax?
« Reply #16 on: November 07, 2019, 03:40:16 PM »
gary17, the stock was pretty hated going into earnings last week. It is up 10% in the past week (since they released results). Not sure what the driver is but we will see in the coming weeks if this move has legs; perhaps the technical picture is improving and this is helping. Fairfax stock does have a history of moving quickly when a new trend is established (up and down). Bottom line, with the stock trading at about BV it is still cheap.

10-year Treasuries are at 3-month highs. Fairfax trades where it did 3-months ago.

It's not a perfect correlation, but I continue to believe that we need to see sustained higher yields before Fairfax can consistently deliver an attractive ROE.


 

Viking

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Re: Is it time to buy Fairfax?
« Reply #17 on: November 07, 2019, 08:01:24 PM »
gary17, the stock was pretty hated going into earnings last week. It is up 10% in the past week (since they released results). Not sure what the driver is but we will see in the coming weeks if this move has legs; perhaps the technical picture is improving and this is helping. Fairfax stock does have a history of moving quickly when a new trend is established (up and down). Bottom line, with the stock trading at about BV it is still cheap.

10-year Treasuries are at 3-month highs. Fairfax trades where it did 3-months ago.

It's not a perfect correlation, but I continue to believe that we need to see sustained higher yields before Fairfax can consistently deliver an attractive ROE.

Twocitiescapital, yes, higher bond yields would be immediately helpful to Fairfax. However, low bond yields are hitting all insurers hard and appear to be an important driver in what looks to be a hard market with pricing. Also, all insurers were being negatively impacted by bond yields falling this year and Fairfax was a massive relative underperformer (in terms of stock price). I think the key reason FFH spiked 10% in a week is sentiment changed; it was deeply oversold and its underlying business was actually chugging along. The rubber band is snapping back.

thrifty

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Re: Is it time to buy Fairfax?
« Reply #18 on: November 09, 2019, 12:38:35 PM »
I was reading Southeastern letter and their comment in Q3 dated Oct. 8:

"Fairfax Financial (-10%, -0.55%), the insurance and investment conglomerate, declined
despite solid underwriting results. The market focuses at times on Fairfax’s emerging
market exposure, which has been achieved very profitably and is a competitive
advantage going forward, but has been viewed this year as a negative when countries
like India struggle. In developed markets where Fairfax has more of its value, property
and casualty and reinsurance markets have been turning around with better pricing
after years of overcapitalization in the market. Fairfax remained disciplined and
avoided growing its policies unprofitably throughout the soft pricing market, and the
company is now intelligently increasing business across its subsidiaries, while
maintaining a strong combined ratio. The Fairfax balance sheet safely holds lowduration
debt and plenty of cash, allowing the company to be a liquidity provider when
superior equity investment opportunities arise."


Then they mentioned their activity:
"We also trimmed Fairfax early in the quarter and
trimmed Comcast and Alphabet as each appreciated in the quarter"


I believe they trimmed when price was above $650.

What's interesting to me is that it seems EM in general could be turning; India, with their tax cut, has been up in market activity and index, the sentiment could have changed. And if Southeastern is correct in the driving reason of FFH share price, we should see a rebound from here (actually underway?)

Any thoughts?

Viking

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Re: Is it time to buy Fairfax?
« Reply #19 on: November 10, 2019, 03:55:10 PM »
Thrifty, there are three keys to Fairfax:
1.) underwriting
2.) bond holdings
3.) equity holdings

Their low stock price is not due to poor underwriting. Their bond portfolio is also very conservatively positioned (quality and short duration). It makes sense to me that the stock has massively underperformed (peers) due to Mr Market not liking Fairfax’s equity holdings (and past under-performance in this area). It currently has significant exposure to emerging markets (Thomas Cook India, CIB, Fairfax India and Africa etc).

If we see a return to risk-on in equity markets and emerging markets take off then this should help FFH stock. (This would also likely mean higher US bond yields which is also good for FFH). For those looking for exposure to ‘risk-on’ trade FFH might be a good fit; perhaps this is a factor driving the 10% jump in the past week.

https://www.marketwatch.com/story/why-a-noted-stock-market-bear-turned-upbeat-on-cyclicals-2019-11-08?siteid=yhoof2&yptr=yahoo
« Last Edit: November 10, 2019, 03:58:00 PM by Viking »