Author Topic: Remember This Quote!  (Read 5230 times)

mattee2264

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Re: Remember This Quote!
« Reply #10 on: September 07, 2020, 02:01:26 AM »
 I think it is Prem's idiosyncractic investment style depressing the share price. Insurers with comparable (or worse) underwriting records trade around 1.2x book and are mostly invested in fixed income. And a large investment universe isn't necessarily a good thing as it gives them more opportunities to make head-scratching investments. Obviously he is trying to achieve outsized returns with his equity investments. But I think it would be in the shareholders' benefits to adopt a more conventional investment portfolio, achieve the easy target of average investment performance, and let the quality of the insurance operating businesses shine through and you will get the double whammy of a re-rating to at least 1.2x book value as well as book value growth on top.


bizaro86

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Re: Remember This Quote!
« Reply #11 on: September 07, 2020, 08:30:07 AM »
I think it is Prem's idiosyncractic investment style depressing the share price. Insurers with comparable (or worse) underwriting records trade around 1.2x book and are mostly invested in fixed income. And a large investment universe isn't necessarily a good thing as it gives them more opportunities to make head-scratching investments. Obviously he is trying to achieve outsized returns with his equity investments. But I think it would be in the shareholders' benefits to adopt a more conventional investment portfolio, achieve the easy target of average investment performance, and let the quality of the insurance operating businesses shine through and you will get the double whammy of a re-rating to at least 1.2x book value as well as book value growth on top.

If they said they were going to index the equity portion of their investments the stock would go up materially the next day, imo. The market views their investing as significantly value destructive.

Munger_Disciple

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Re: Remember This Quote!
« Reply #12 on: September 07, 2020, 11:44:17 AM »
There is really no comparison between FFH & Berkshire. Berkshire is so much better in every aspect than FFH that it is like comparing Roger Federer to a club player. In this interest rate environment it is crazy to have a 15% compound return target for intrinsic value with tons of leverage. That just won't happen. I prefer companies that under-promise and over-deliver.
« Last Edit: September 07, 2020, 11:53:06 AM by Munger_Disciple »

rranjan

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Re: Remember This Quote!
« Reply #13 on: September 07, 2020, 12:03:13 PM »
Why would I want to buy FFH - which has struggled w/underwriting historically for sometime - when I can get BRK which is highly profitable, CHEAP, and has much better insurance exposure & other businesses overall.  I wonder on a risk-adjusted basis which is cheaper for the long-term... FFH or BRK ?

Buffett's investment universe is 1/15th the size of Prem's.  If Buffett's universe comprises 200 public and private companies worldwide, Prem's universe has 3,000 companies to look at. 

It will be a huge advantage as long as we assume that Buffett and Prem can be compared as investor.

Prem has speculated many times and won some time. Buffett operates differently and his process is likely to produce very few permanent loss. He has still taken 1-2% permanent loss in past, but that's not going to set back Berkshire too much. Buffett process is repeatable and outcome is more predictable.

Prem can still produce higher returns due to being small, but certainly of that outcome is not very high. Both are different and can't be compared.


Munger_Disciple

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Re: Remember This Quote!
« Reply #14 on: September 07, 2020, 12:53:39 PM »
Quote
Prem can still produce higher returns due to being small

First of all, the asset base of FFH is not that small (though much smaller than BRK). FFH also faces competition from PE and others for deals in the $1-5 billion range. Second being smaller in no way guarantees success; the lackluster investment performance of FFH over the last 15 years is a prime example of that.
« Last Edit: September 07, 2020, 04:15:24 PM by Munger_Disciple »

rranjan

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Re: Remember This Quote!
« Reply #15 on: September 07, 2020, 02:20:56 PM »
Quote
Prem can still produce higher returns due to being small

First of all, the asset base of FFH is not that small (though much smaller than BRK). FFH also faces competition from PE and others for deals in the $1-5 billion range. Second being smaller in now way guarantees success; the lackluster investment performance of FFH over the last 15 years is a prime example of that.

I was comparing only with Berkshire in relative terms. Anyway, as you said being small does not guarantee sucess.

With similar skill set, being small should provide a higher probability of success, but I don't think that skill set of Prem and Buffett can be compared.

Fairfax is priced cheaper than usual right now and owners may do fine in the  next few years with insurance hard market coming, but I don't know how to hadicap it. I put it in my too hard pile.
« Last Edit: September 07, 2020, 02:25:00 PM by rranjan »

Tommm50

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Re: Remember This Quote!
« Reply #16 on: September 08, 2020, 09:08:20 AM »
Conspiracy theories surrounding old enemies start to percolate...

Xerxes

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Re: Remember This Quote!
« Reply #17 on: September 08, 2020, 02:55:30 PM »
How about Onex, the Canadian private equity company based in Toronto.

Shares off from $86CAD pre-pandemic to mid-$60; as much off as FFH.
Onex doesnt have a insurance business, but manages third party capital. That is its float. However, it generally invest a lot more alongside its partners, so i believe it makes dough mostly from capital gain as oppose to management fee + carried. Though it has been working to grow that.

Both FFH and Onex are of similar size, while the source of float is different, they have substantial assets under management.
Larger for FFH at $39 billion compared to $31 billion for Onex.

Onex's investment portfolio had about $1 billion loss in Q1, 2/3 of which was reversed in Q2. Somewhat similar to FFH that recovered only a portion of its Q1 impact when Q2 results came out.

For Onex, in the Q2 results in August, there is a chart that shows their calculation of value per share that comes to $84. Of that cash + investment with publicly traded shares make up $43 per share. The businesses with private valuation + Onex credit add another $40 per share. And they spend $250 million to buyback their shares at $57 market value. Asked why not more substantial buyback, answer was as investor, they are better off keeping their powder dry. Very much like FFH.

The reason why I throw Onex here in a FFH thread is to just point out that even an asset manager (onex) that didn't make weird macro bets & lost, has its share price cut and it has not even recovered by a little. Primarily, perhaps due to the opaque nature of some its more private business, where valuations are subjective. And even then, much like FFH, they are not doing major tender offer to buyback shares.

i do wish that Prem could produce a chart like this on page 19, where he would classify all of his investments and put them into three buckets: (1) low to positive impact (2) demand/supply headwinds due to covid (3) direct covid hit.

https://www.onex.com/static-files/8361bcc3-f860-4d5f-81be-64dd5868f832