Author Topic: Prem's 2020 Letter to shareholders is out  (Read 6673 times)



chrispy

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Re: Prem's 2020 Letter to shareholders is out
« Reply #1 on: March 07, 2020, 06:12:00 AM »
Prem still blames the poor performance on value being out of favor. Investments with declining metrics are the problem. I wish he would have put RFP and Blackberry on the summary list with FANG stocks - I think the underperformance would be clear. He then moves on to a conclusion using nothing more then PE without describing their competitive advantages, business model, cash balances, free cash flow, etc

If Wade can compound close to 20 percent, put him in! In sports Prem would be on the bench and Wade would be selling jerseys, filling stands and creating shareholder wealth

Edit: I just had a good night of sleep and an espresso - sorry if I am a little excited!

racemize

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Re: Prem's 2020 Letter to shareholders is out
« Reply #2 on: March 07, 2020, 06:40:21 AM »
Some weird end-point picking in several sections.  I guess the 2016 one makes sense because of hedges, but the one that stopped at 2018 instead of 2019 on underwriting reserves--really?

Spekulatius

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Re: Prem's 2020 Letter to shareholders is out
« Reply #3 on: March 07, 2020, 07:04:42 AM »
Greece, BlackBerry, Stelco, Airports have gone down substantially since  YE 2019. I wish I had sold more at $470. I hope they can take advantage of the hard Market but the lower bond yields are going to be quite some headwinds in the coming years and a 97% combined ratio isn’t really that great of bonds are yielding close to zilch.

These combined ratios for insurers really need to come down to the low 90% in that framework.
« Last Edit: May 13, 2020, 06:59:16 PM by Spekulatius »
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Cigarbutt

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Re: Prem's 2020 Letter to shareholders is out
« Reply #4 on: March 07, 2020, 11:08:10 AM »
...
These combined ratios for insurers really need to come down to the low 90% in that framework.
Let's push this idea further. There has been a financial environment shift since the 2007-9 episode in the P+C world with most companies adapting to the 'cheap' capital environment, settling with lower ROE and gradually increasing P/B ratios. During the same period, FFH reported a very lumpy ROE, with an overall slight underperformance overall based on that metric and the market perception is resulting in a declining P/B ratio. FFH continues to differentiate itself from the pack (float investment side) and the question is how it will perform going forward. An interesting feature is that 'cheap' capital has resulted in resistance to harden the market (ie tolerate higher combined ratios) and has resulted in very low returns on the fixed income side of the portfolio (float).
https://www.macrotrends.net/stocks/stock-comparison?s=roe&axis=single&comp=WRB:TRV:CB

Is FFH better positioned at this point compared to peers?
Is the answer in the risk management section?

petec

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Re: Prem's 2020 Letter to shareholders is out
« Reply #5 on: March 07, 2020, 05:49:58 PM »
He then moves on to a conclusion using nothing more then PE without describing their competitive advantages, business model, cash balances, free cash flow, etc


In fairness, he dedicates an entire page to how key metrics have compounded over the last decade for these companies and then says “shame on us” for missing the most important trend of that decade. I doubt he feels his job is to lay out the competitive advantages of companies he doesn’t own.
FFH MSFT BRK BAM ATCO LNG IHG TFG CGT DC/A

investmd

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Re: Prem's 2020 Letter to shareholders is out
« Reply #6 on: March 14, 2020, 08:59:00 AM »
Points I took away from FFH 2019 Annual Letter:

1.   The letter lacks integrity. Starts with 2019 was a great year for FFH and continues mostly with unbridled optimism throughout. Reality is shareholder return for 5 & 10 years have been terrible - he doesn't openly admit it and doesn't admit frustration with it and lay out a plan to change it. If one cares for their shareholders, he would be more contrite about the returns he has delivered.
2.   Ends letter with : "Over our 34-year history, we have always operated at Fairfax with a small team which, with great integrity, team spirit and no egos, protects our company from unexpected downside risks and which takes advantage of opportunities when they arise".  Well, after reading a decade plus of his annual letters, I've changed my mind - he's not showing integrity/honesty and his writing has consistently exhibited egotistical behaviour and FFH has not been able to take advantage of opportunities like others have.
3.   Insurance business is doing very well, has improved significantly and is successfully generating no cost float and is the jewel of FFH
4.   I’m glad that he has openly admitted that BB, Exco, and Resolute were mistakes – he is more open about this today than in the past
5.   Believes, “India is the best country to invest in long term”. OK, but no explanation as to why. Not genuine.
6.   Believes Modi re-election will turn around Indian economy. Again, no explanation as to why especially given that was the thought at time of Modi’s first election and it didn’t come to fruition. Again not genuine in his writing.
7.   Over 5 years intrinsic value has compounded by <5%/yr & share price <1%/yr. Over 10 yrs: IV - 3.2%/yr & share price at 5.2%/yr. Prem’s only comment on stock price is : “In last 4 years stock price has not gone up with intrinsic value, but it will happen again” - with no explanation. What about the fact that IV is only up 3.2%/year over 10 years?
8.   On investments: “shows that Fairfax’s investment results have been consistently very good since inception, with the exception of the 2011 – 2016 time period, when we treaded water” - how can he say “consistently very good” as investment returns over 33 years have been 8%/yr and over past 10 years have been <5%/yr ? Isn’t the point of his investing prowess to do better than the index? How can he say “very good”?
9.   “So when the correction happens (and it may be happening as we speak), we expect value stocks to provide better protection on the downside”.  A week after the report comes out, we are in a correction. From what I see, when there is a correction, everything goes down – BRK & FFH are down just as much as tech stocks.
10.   Committed to buying back shares over next 10 years


Being optimistic is one thing. Not being in touch with reality and getting people to invest in you/your business by shrilling dishonest optimism is getting to be on the Ponzi scheme side of things. As a long term shareholder, I am so disappointed in this man.

@Sanjeev: You have been a big supporter and believer in Prem Watsa’s honesty and integrity. This website's name is in homage to FFH. Watsa has shown his belief in you and invested in you. I’d appreciate your thoughts to above comments. Would also love it if there was a way to get FFH to reply.

longinvestor

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Re: Prem's 2020 Letter to shareholders is out
« Reply #7 on: March 14, 2020, 09:27:54 AM »
One thing Prem appears to be comfortable doing is investing after political / country events. Trump/Modi elections and Greece/Ireland crises. Reasonable folks would put such things in the too hard pile (like really really hard) but it appears to come easy to Prem. Or at least he appears to believe so, from the commentary in his annual reports.

StubbleJumper

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Re: Prem's 2020 Letter to shareholders is out
« Reply #8 on: March 14, 2020, 09:47:44 AM »
One thing Prem appears to be comfortable doing is investing after political / country events. Trump/Modi elections and Greece/Ireland crises. Reasonable folks would put such things in the too hard pile (like really really hard) but it appears to come easy to Prem. Or at least he appears to believe so, from the commentary in his annual reports.


For all investments, Prem's preferred pile is the "too hard pile."  At least with Greece/Ireland/Trump/Modi there's a prospect of a broad move upward.  I am more disturbed by things like:

1) Toys R Us - retailers everywhere are getting stomped by Amazon, Toys went broke in the US, but an insurance holdco from Canada figures it can make a go of the Canadian operations.

2) Port of Churchill - Omnitrax had been trying to dump the rail line and port facilities for years and couldn't find a buyer.  The track was not operational and hadn't had a train in over a year.  But, an insurance holdco figures that it can make a go of this operation.

3) Stelco - this outfit, operating in a cyclical industry, has already gone bankrupt and the US imposed tariffs on the import of Canadian steel.  But, an insurance holdco figured that this had good prospects.

4) TorStar - newspapers everywhere were getting stomped by the availability of free content over the internet, and better targetting opportunities for internet advertisers.  As it happens, the newspaper shared a market with the Globe and Mail, the National Post as well as the Toronto Sun.  Despite having been repeatedly taken out the woodshed, FFH was still piling capital into Torstar in November, 2017.


I can understand the notion that Irish banking would eventually turn around and that Greek real estate has been valuable for the past 5,000 years.  I understand the notion that India is a very populous country, does not have China's demographic head winds, and just needed a business friendly government.  What I struggle with is the audacity to assume that the industry headwinds that I listed in the aforementioned investments had any reasonable prospect of being overcome after an injection of FFH money.

Up until a few weeks ago, this period since the financial crisis has been the easiest period to make money in the stock market...Christ, pick a stock at random and you'd have probably made decent money off of it over the past 10 years.  It takes a real special talent to have assembled a portfolio of investments that have stunk this badly.


SJ

bearprowler6

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Re: Prem's 2020 Letter to shareholders is out
« Reply #9 on: March 14, 2020, 10:37:58 AM »
Points I took away from FFH 2019 Annual Letter:

1.   The letter lacks integrity. Starts with 2019 was a great year for FFH and continues mostly with unbridled optimism throughout. Reality is shareholder return for 5 & 10 years have been terrible - he doesn't openly admit it and doesn't admit frustration with it and lay out a plan to change it. If one cares for their shareholders, he would be more contrite about the returns he has delivered.
2.   Ends letter with : "Over our 34-year history, we have always operated at Fairfax with a small team which, with great integrity, team spirit and no egos, protects our company from unexpected downside risks and which takes advantage of opportunities when they arise".  Well, after reading a decade plus of his annual letters, I've changed my mind - he's not showing integrity/honesty and his writing has consistently exhibited egotistical behaviour and FFH has not been able to take advantage of opportunities like others have.
3.   Insurance business is doing very well, has improved significantly and is successfully generating no cost float and is the jewel of FFH
4.   I’m glad that he has openly admitted that BB, Exco, and Resolute were mistakes – he is more open about this today than in the past
5.   Believes, “India is the best country to invest in long term”. OK, but no explanation as to why. Not genuine.
6.   Believes Modi re-election will turn around Indian economy. Again, no explanation as to why especially given that was the thought at time of Modi’s first election and it didn’t come to fruition. Again not genuine in his writing.
7.   Over 5 years intrinsic value has compounded by <5%/yr & share price <1%/yr. Over 10 yrs: IV - 3.2%/yr & share price at 5.2%/yr. Prem’s only comment on stock price is : “In last 4 years stock price has not gone up with intrinsic value, but it will happen again” - with no explanation. What about the fact that IV is only up 3.2%/year over 10 years?
8.   On investments: “shows that Fairfax’s investment results have been consistently very good since inception, with the exception of the 2011 – 2016 time period, when we treaded water” - how can he say “consistently very good” as investment returns over 33 years have been 8%/yr and over past 10 years have been <5%/yr ? Isn’t the point of his investing prowess to do better than the index? How can he say “very good”?
9.   “So when the correction happens (and it may be happening as we speak), we expect value stocks to provide better protection on the downside”.  A week after the report comes out, we are in a correction. From what I see, when there is a correction, everything goes down – BRK & FFH are down just as much as tech stocks.
10.   Committed to buying back shares over next 10 years


Being optimistic is one thing. Not being in touch with reality and getting people to invest in you/your business by shrilling dishonest optimism is getting to be on the Ponzi scheme side of things. As a long term shareholder, I am so disappointed in this man.

@Sanjeev: You have been a big supporter and believer in Prem Watsa’s honesty and integrity. This website's name is in homage to FFH. Watsa has shown his belief in you and invested in you. I’d appreciate your thoughts to above comments. Would also love it if there was a way to get FFH to reply.

Investmd....I understand your frustrations totally. I have studied Fairfax in-depth for well over 20 years and invested in the shares almost as long. I concluded a few years ago that something was very very wrong. Despite all of my considerable efforts I could not get to the bottom of the problem. in the end I concluded it was not one or two problems but a myriad of problems  that could not be corrected/overcome. As a result I started to sell off a portion of the shares I owned until I reduced the overall share position to a much smaller portion of my overall portfolio. I can assure you that I never looked back. My only regret....not selling all of the shares that I owned. I enjoyed going to the annual meeting and related activities which included meeting up with old friends that I had met along the way but let's get serious these reasons are not enough to keep me invested in the stock.

So for what its worth....start selling off your Fairfax holdings. It will hurt to do so but in the end you will not regret it.

Others will disagree  with this recommendation but a growing number will agree. Good luck!