Leaderboard

@Luca - nah - you just painted Islam with the broad brush of not feeling Chinese. Hence, the justification for forced abortions and concentration camps for Uyghurs. Brilliant China - so much for religious freedom and individual tolerance- problem solved. You keep up the cheerleading!

I guess it may be time for another flush: I do not think the Saudi's will play this over again like in 2015, as it cost them dearly.

FFH

I think the Shiller PE is the best, but still imperfect way to look at the market price to value. Lets ignore how top heavy the S&P 500 has gotten and how Shiller doesn't account for tax or interest rates and assume you could use it as a market timing tool. If you did, you'd have to be out of the market for years on end, even decades, all the while missing growth in S&P earnings until you get back in. I don't see any mechanical rule that is possible to follow from it. For example, if you get out at a 30 PE and back in at a 20 PE, it would have gotten you out in 1929 just before the peak but put you in again in 1930 to ride it down to a 70% loss in 1931. Or out in April, 1997 (800) and not back in until Oct 2008 at 1000. That looks great until you realize that adjusting your basis for dividends lowers it to $570 and increases your returns to 5% annualized. So if you had the incredible self-will made of pure steel making decisions emotionlessly on positive expectation mathematics that is necessary in order to be able to sit out the market for 11 and a half years you would have, roughly broken even holding bonds instead of the market? In reality if you are going to actively invest, measures of how cheap or expensive the market is shouldn't matter at all. You either find attractively priced opportunities, or you build up cash and keep looking in different places. If the S&P 500 is overvalued, that doesn't mean mid-caps or small caps are, and if they are all generally overvalued that doesn't mean there aren't still a few great opportunities in all of them. Buffett clearly described the internet bubble as it was happening, but he didn't sell his stocks. No one did.

Gents, AI is one hell of a drug.

Well if someone would replace google search with something better on your iphone - would you miss it? maybe. Same with google maps - Apple maps has improved to the point where it is almost as good. So most tech moats don't have the longevity that people think they have. the above isn't a theoretical exercise either since google pays Apple dearly to be the default search engine and Apple maps already exists. So Apple could very well change their mind and attack the moat with their own search or replace with Google (AI enhanced) search for example. I don't think the tech moats have the longevity that people think they have. Lot's of tech moats have disintegrated lately -Paypal, Intel, Cisco are fairly recent examples. I believe with tech it's much more about having great and forward looking management in place then the tech moat itself. When you look at history, each tech moat is probably seriously challenged every 10 years or so and it depends on management if they keep the moat intact or even develop new moaty business or not.

Canada has been taking a hard turn left under the federal Liberals… entrepreneurs are exploiters… businesses exist to pay taxes. Government regulation of the economy is increasing. Not a model, IMHO, that will surpass the US. The Liberal ‘experiment’ of ramping immigration/foreign workers/international students boosted Canada’s population by over 1 million last year. Total population of Canada is 40 million. The problem? We have a severe shortage of housing. And the economy here is slowing more than in the US (the Canadian mortgage market resembles that of the US in 2006 - and the low teaser rates are now expiring - so higher interest rates are slowing aggregate demand). The severe housing shortage looks like it is becoming THE political issue. It will take +5 years for the supply problem to be addressed. The crazy high number of newcomers is spiking demand. Many Canadians (who are pro immigration) are questioning if this is the right time to be bringing in record numbers of people into the country. We will see. I don’t think any of this affects Fairfax. If Fairfax grows insurance it will likely be outside of Canada. Given Canadas hard move left (and attitude towards businesses), I am not sure it is a great place to invest in today. There will be a Federal election in 2025 - if the Conservatives are elected we would see a shift to the right.

Black enough for me:

You know, it's all a derivative of punk rock. I grew up on The Clash, Sex Pistols, Dead Kennedys, etc. Metal, grunge, black metal, etc...all came from punk rock. Cheers!

Yup! Can be quite the bitch as well! Cheers!

We don’t like Turkey so we do this:

Are global scale economies not a moat in the insurance business? I think we’ve increasingly seen that in Fairfax’s results. And could a deep pocketed investor replicate Fairfax’s footprint and well managed operation today? How much capital and how many years and missteps would that take? I think that’s real now. Also, what are the best private businesses in Canada? Would those owners see Prem as someone who would take good care of their babies and so consider selling to FFH at lower prices than some random private equity firms? If not, well, that seems like a missed opportunity. I think of that as the secret sauce for BRK, a reputation well and hard earned over many decades of doing what they say as permanent owners. So to the degree Fairfax is moving in that direction, they are gradually widening the moat and incremental returns should remain high (if volatile/chunky) for a long time.

At this rate we will get the following funds 1) Charren Mungffet moatful fund 2) Buffger large cap value fund 3) Blumkin consumer staples fund 4) Pabshire Mohaway coffee can fund 5) Mungrai cannibals fund

These days I give a decent amount of credit to Prem for his capital allocation decisions and opportunities. Buying back stock like Singleton of Teledyne, at book value or below, is something that few other CEOs are willing or able to do in a rational, shareholder friendly fashion. He also has the ability to buy back portions of associates that he has sold off to OMERS to raise the capital needed for previous buybacks (10% of Odyssey). The longer term focus on shareholder value, and maintaining franchise value of the insurance subs by not laying off staff in times of crisis (COVID) is also a differentiator from competitors. I used to work for a competitor that wasn’t able to maintain capital levels sufficient to support the writings of premium levels when they rose from the inflation shock of the last few years, and their capital levels dropped because they were reaching for yield on their bond portfolio. I got laid off recently as the staff cuts began, in an effort to return to profitability so that capital levels could be rebuilt. (I am able to view the early retirement with equanimity because I have over 70% of my retirement assets in Berkshire and Fairfax.) The less experienced staff that has been retained will be cheaper, but most of the value I added over the years was in using my experience to help the company avoid self inflicted wounds through poor business decisions. Fairfax’s insurers will have a continuing and expanding advantage over the company I used to work for because they have a solid balance sheet, and a growing insurance business, which gives them the best of both worlds — experienced staff and opportunities for professional growth for the newer employees that are added each year. Don’t underestimate the value of the corporate culture that has been created at Fairfax. That can be part of a company’s enduring moat just as much as more easily understood business model advantages can be….

Was a terrific movie! Benicio is one of the best actors of his generation. Still can't believe how he stole every scene as the honest Mexican cop in Traffic, and his best role ever was the assassin ex-lawyer in Sicario. Cheers!

Maybe the catalyst for FFH to rerate to ~1.4x book (low teens normalized earnings) is the marginal MKL shareholder (re)discovering FFH. As a noted MKL hater, nothing would please me more.

@vinod1 with earnings growth of 5% are you not essentially saying Fairfax’s capital allocation will be poor moving forward? Part of the reason I am so optimistic on Fairfax today is: 1.) the cash flows are front loaded. We know with a fairly high confidence level that they are going to deliver record operating earnings 2023-2025. Buffett teaches us when valuing a company the TIMING of future cash flows is exceptionally important (the sooner the better - the higher the valuation a company should get). 2.) the opportunity set to deploy capital is very good today and i suspect is about to get even better: and Fairfax has +$3.5 billion that will be re-invested each year moving forward in a very good investment environment. Bond yields are at 15 year highs. Small cap stocks are trading at bear market lows. If we get a recession all equities will go on sale (and already cheap equities will get stupid cheap). When it comes to capital allocation today, Fairfax is like a major league hitter getting lobbed softballs. As a result, I will be surprised if earnings growth is 5% per year moving forward. You also bring up ‘one time’ losses. Fairfax’s results will be volatile. Especially if we get a recession (no idea if this happens). My view is volatility is a good thing for Fairfax - smoothing results out over a couple of years. The TRS-FFH purchase in late 2020/early 2021 is a great example. They masterfully took advantage of extreme volatility in Fairfax shares - extreme pessimism. Another great example was selling corporate bonds and shifting to government bonds and shortening duration to 1.2 years in late 2021. They sold at the top of the fixed income bubble. The extension of their fixed income portfolio to 3.1 years in October looks exceptionally well timed. Selling Resolute at the top of the lumber cycle? Brilliant. Selling pet insurance for $1.4 billion…. Nuts. Lots of these decisions are $1 billion decisions… they are ‘needle movers’ for Fairfax and its shareholders. Fairfax investors fear volatility. I think they might have it backwards. Especially given how Fairfax is positioned today (strong balance sheet and record operating earnings). Investors in Fairfax should be praying for volatility. With both insurance and financial markets. Thriving in volatile markets - this looks to me like it is likely a significant competitive advantage for Fairfax today compared to peers.

@StubbleJumper why do you think 1.) a 95-96CR is not sustainable over the next 5 years? What if Fairfax IS becoming a better underwriter? 2.) interest rates today are ‘favourable’? What if interest rates are simply back to normal? 3.) power of compounding is dead? it also appears you think Fairfax (and its equity holdings) will not invest record earnings well moving forward… $3.5 billion per year in earnings is a big number… it could deliver $350 million ($15/share) in incremental earnings to Fairfax each year if it is invested wisely. 2023 + 2024 + 2025 - year after year etc. You appear to be completely discounting the power of compounding looking forward… Yes, the hard market will end at some point. Yes that will slow top line organic growth. But why does that mean CR has to immediately increase to 100 or higher? Yes, interest rates have increased from when they were zero. Why do we think they will be going back there? People are anchored to the financial regime from 2008-2021. What if the next 10 years is different? Maybe we ARE in a structurally higher inflation environment. Which suggests we are also in a higher interest rate environment. Cost of capital matters again. Active management matters again. Since 2018, Fairfax has excelled with active management. Why do we think they are all of a sudden going to get stupid? Do i know how the future is going to unfold for Fairfax? No, of course not. I see a range of outcomes - some good and some bad. With a ‘baseline’ forecast i try and find the middle ground in the forecast. Some items will be too high; some will be too low. I also try to work with facts as much as possible. Do i know how the insurance cycle is going to work out? Ot the economy? Or interest rates? Macro? I have no idea. So why would i assume it all turns against Fairfax? My guess is there will be both puts and takes. What i see on the board is lots of pessimism. But no balance. No discussion of what might go better than expected. So i view people on the board as being too bearish in their outlook for Fairfax’s earnings moving forward. i don’t equate bearish with being conservative. Conservative would include a more balanced discussion of positives and negatives. I enjoyed listening to Howard Marks most recent memo: Further Thoughts on Sea Change - https://www.oaktreecapital.com/insights/memo/further-thoughts-on-sea-change ————— PS: look at Eurobank. Look at the turnaround at this company the past 5 years. Look at what it is earning today (a record amount) and what it is doing with those earnings (purchase of Hellenic Bank). My guess is EPS will increase 20% in 2024. They likely will be instituting a dividend in 2024 and payments to Fairfax could be $80-$90 million. This will increase total dividends received by Fairfax by 50%. It is meaningful. Not built into my $150 ‘normalized’ number. Digit? Do people think we are done with this investment? My guess is it is likely to deliver significant incremental value to Fairfax shareholders moving forward. GIG is a great real time example. This purchase will increase top line. And float. And investments. Fairfax is done after the GIG acquisition? Because we don’t know with certainty what they are going to do we assume they are going to do nothing? These are just three quick examples. Fairfax has so many levers to pull to drive value for shareholders moving forward with insurance and investments. My guess is they are going to continue to execute well. But i remain open minded.

Fairfax has had an amazing run the past 3 years - the stock is up about 200% - so it is hard to argue that the stock is unloved or even under-followed today (maybe i need to update my view on this…). That is an amazing increase. The response from the analyst at RBC highlights just how long it takes for the narrative around a company to change. It takes many years. A good example is Apple. Apple’s stock bottomed in 2013. It took 7 years - right through until 2020 - for the old narrative to be fully exorcised and for the new narrative to become entrenched. And a lot of money was made by patient shareholders. The key for investors in Apple during this period of time was to simply hold their position - to sit on their hands. That is probably the key lesson here: patience. As long as the story / fundamentals remain intact, holding though the update in narrative phase (also called multiple expansion) can be extremely profitable for shareholders. Growing earnings + increasing multiple + lower share count. This was Apple’s secret sauce and over a 9 year period it gave shareholders a 12 bagger.