dartmonkey

You are like my son, then. He finds something to disagree about with both the Liberals and the Conservatives, so he won't vote. (He doesn't like that the conservatives have not promised to eliminate supply management for milk, eggs and poultry.) The fact that the conservatives would be a more sensible choice than the liberals for 90% of the issues he cares about doesn't matter to him. For the deficit, the liberals would keep increasing spending, make nonsensical cuts to taxes (GST holidays, exempting arbitrary items, etc.) and increase income and capital gains taxes, with an increasing deficit, while the conservatives would cut spending, and cut a few taxes (the carbon tax, which provides no net income to the government), and maybe cut corporate and capital gains taxes, reducing the deficit but not eliminating it, at least not in the short term. So if I want the deficit completely eliminated (as I do), I have no party to vote for, right? Or I could vote for the conservatives, and get 90% of what I want. They're all batshit crazy, but some are more batshit crazy than others.

Yes, as you say, EV = market cap + debt - cash. If EV is US$690, and debt is $488m (according to the annual report, p. 92), then if there is no cash, that would give a market cap of $202m. Equity accounting would be logical fro a 59.6% stake but they may just be saying that the equity accounting gives a carrying value that may well be below fair value.

Yes - in USD, they got as low as $909, or C$1213. The Muddy Waters exposé was published on Feb 8 and that's when the USD price dropped form the previous day's close at C$1404 to $1213 intraday Feb 8, before the opportunists among us bought enough shares to stop the drop. Then it recovered all its losses by a week later as the market read this board and realized we weren't at all impressed, with the company itself calmly and effectively refuting all the accusations the week afterwards. Even the Feb 8 low was just rolling back the 5 weeks of gains since the end of 2023 (C$1222.51, or C$1202.96 if you adjust for the US$15 dividend.)

Hard to believe that, 6 weeks later, we are at $1946 CAD and $1394 US, an hour before close, touching all time highs intraday for both of them and heading for all time high closes. Not to mention that the thread was started in December 2 years ago, by viking, who said: "Christmas has come early. Fairfax’s stock price has hit a new all time high today in Canadian dollar terms of $791.93 (markets haven’t closed)."

Does the shift from preferred shares to debt result in greater per-share income numbers? To the latter question, clearly the answer should be yes, since EPS is net after tax income less preferred share dividends, divided by common shares. If you buy out the preferred shares by takiing on debt, the interest on the debt will reduce your pre-tax income by the same amount as you reduce your preferred dividends, but then you get the tax benefit of those interest payments, which you don't get with the preferred dividends paid. In response to viking's question, I would think that this would reduce the equity capital of the company, like a buyback, but I look forward to the responses of people more familiar with insurance regulation.

Your way.

Count me in the viking/castanza/ cwericb etc crowd, with the thinking that this is a core position with the potential of being worth 5x as much in 8-10 years, based on how the insurance companies are performing, how the investing decisions are being made, and how long the runway is. So just hold the damn stock. I don’t want any metric (ROE?) or short-term performance wobble (a bad earnings year, R?) to bump me out and miss this opportunity. Why would I do that to myself?

Not that it makes that much of a difference, but I believe that the 5% hurdle is non-compounded, meaning that at this point it is only about 2.5%. I’d have to dig up the documents that convinced me of that but I believe it’s true.

Yes, a 5 year high even. Hard to believe the share price was $17-18 in October 2017, talk about one extreme to another. But I think that despite being up 15% in the last 2 months, it's still a great deal, at 0.72x book, with a book value that is probably understated in the first place. Requires patience. My biggest holding in terms of percentage of the company owned!

You can do it both ways. Hell, how about just borrowing that 3% down payment from your parents, and now you have an infinite return, using the second method, right? But in most circumstances, I think it makes more sense to use the first method, so the answer would be 100% (and 292% for the Fairfax's total return swaps.)

I think this is exactly right. Fairfax bought swaps on 1.964m shares, let's say 2m, at $344 a share, so they had $677m at risk, and they are now sitting on unrealized gains of 1.964m*($1350-$344) = $2651m - $677m = $1976m, roughly a 290% gain. Just because they didn't have to lay out cash at the time the swaps were set up doesn't mean that that $677m of capital was not at risk. Any investor who invests $677 and gets back $2651 has a ROIC of 292% - the cost of financing doesn't enter into it. If the ROIC is less than the weighted average cost of capital (WACC), then that return is not enough to make it a good investment, but the ROIC is what it is.

It isn't though. To buy the shares required a cash outlay of hundreds of millions of dollars. The TRS probably required outlays of 10-15% as initial margin meaning the trade was nearly 7-10x levered versus buying the shares outright. Yes - all I am saying is that the pre-tax $ gain is the same (and maybe the post-tax $ gain, if the gains are exempt from tax - that will be interesting to see). As I acknowledged, the effect on liquidity and the tax implications are quite different, but the economic gain is equivalent to a share repurchase at the price that prevailed when the trade was put on. The value of the TRS goes up by $1 if the share price goes up by $1, and down by $1 if the share price goes down by $1, so it is like buying a share, from a gain perspective. It makes sense to have done the trade as a swap, given the liquidity position Fairfax had at the end of 2020, but economically, it's like buying 2m shares, so I would calculate the return that way. If it quacks like a duck...

My guess is that it's exactly the same, as far as the return goes, as if Fairfax had just repurchased the equivalent number of shares. Obviously there are other differences. Liquidity, for one thing, and availability of FRFHF shares that are being traded, and, perhaps, tax consequences. For instance, I wonder whether Fairfax has not discovered an innovative way of avoiding the recent repurchase tax of 2%, although that was not the reason to set up the trade, as the TRS's were purchased before the tax came into effect (Jan 1st, 2024.) Think about it this way: they put on the TRS trade with exposure to 1.964m shares when shares were trading at $344 (all number $US). If they had had the liquidity then, they might also have just bought that many shares for 1.964m*$344 = $677m. With shares now at $1350 (ignoring today's $50 plunge), they have gains of 1.964*(1350-344) = $1.976b. Now that they have lots of liquidity, they could use that cash to buy back shares - if they wanted to buy back 1.964m shares, it would cost them a lot more now, in fact that would be 1.964*1350= $2.652b. To do that, they could use their $1.976b in TRS gains, plus another $677m. It is no coincidence that that $677m happens to be exactly how much it would have cost them to buy back the same number of shares back at the end of 2020 when they put on the TRS trade. In other words, at the end of 2020, Fairfax locked in the price of almost 2m shares, at $344. Using the gains from the TRS's, they could now buy back those same 2m shares by paying the cash they have received from the swaps, plus another $344 per share. So economically, they have the effect of a 2m buyback, but with there will be all sorts of differences, tax on the gains from the TRS's maybe being the worst. If I am correct, they may never close the TRS deal - why would they want to pay all that tax on the capital gain? And then pay another 2% tax on further repurchases? It might make more sense just to hold them indefinitely.

Does anyone happen to have a transcript of the Q3 earnings call?

A bad day for the fans of share repurchases, but a nice day on the TSX60 waiting list, moving up 5 spots, passing 2 financials that are in the index (National Bank! and Sun Life), 1 financial that is in the list via Power Corp (Great-West Lifeco) and nipping at the heels of another, Intact.

You are being generous. I think it was pretty clear that it was bunk right from the beginning. Although Fairfax has had a few valuation marks that, taken in isolation, seem a bit aggressive (marking up holdings when they buy shares from Teachers, for instance and MAYBE Digit, since no one really knew what fair value was), taken as a whole, they clearly have a lot of holdings that are priced way below fair value too, and in any case, the earnings are the earnings. The Digit IPO was just the final proof that even the plausible sounding criticisms were way off the mark. It's a shame for Muddy Waters - they serve a useful purpose and have a pretty good track record of finding real fraud, so there was no need for them to muddy their record by throwing dirt at a good firm. But I was happy to see that Fairfax responded well, calmly refuting the accusations and showing that there is no need to get upset. Fairfax has not been harmed and is arguably more immune to a similar attack in the future than if they hadn't weathered this one.

Yes, 140.75 by my count: 2007:2.75 2008:5 2009:8 2010: 10 2011-13: 0 2014-23: 10 2024: 15 Nice going.

I'm not sure if your question is serious or not but in general, it makes no difference which currency you buy it in. There is a slight liquidity advantage on the Canadian side, but on the other hand if you buy FFH in a CAD account and if you have a typical shitty Canadian broker (i.e., not Interactive Brokers or maybe a few others) they will convert your USD dividends into Canadian funds at a very disadvantageous rate. The big difference in % returns between FRFHF and FFH, on some days, is mainly due to changes in the USD:CAD rate. On a day when the CAD drops a lot, like going from $1.38/USD to $1.39/USD, for instance, if FFH goes up 1%, FRFHF will just tread water, but in fact your FRFHF value, in Canadian dollars, will be the same as if you had held FFH in a Canadian account. Don't sweat it.

Funny thing is, although I agree with almost everything you say, I come to the opposite conclusion. As you say, everyone's tax situation is different, and most people will pay tax on a company's earnings, whether it is i the year they sell or in the year they remove funds from their tax sheltered account, and whether it is from dividends or from capital gains. A company that pays out dividends has provided a return to the investor, however much of that return the investor will be allowed to keep. A company that reinvests those earnings, instead of paying them out in dividends, will also end up increasing the investor's taxes at some point. So the only reasonable way to compare 2 investments is to assign some value to the dividend. Doing that calculation by assuming the dividend is reinvested will not correspond to everyone's choice, but it's a way of approximating the value that an investor has obtained. If you prefer a more complicated formula, where you calculate the net present value of all the income stream (the initial investment at time 0, and then the subsequent dividend payouts over the course of the investment holding, and then the terminal value as of the day of the evaluation, then this is even better. But the dividends should not be ignored.

The title is a bit misleading - it is the consensus that is deteriorating, not the fundamentals. And it would make sense that, with interest rates coming down, the consensus view of the future might deteriorate. The question is, is that anticipated deterioration already in the share price, or not? Their finding suggests that analysts' worries tend to overcorrect the share price leading to short term gains (in the following month, singular). Most of us probably don't care very much what the price does in the next month, so this finding is not really relevant. Decreasing interest rates will be a brake on interest income from current investments, but there is no reason to think that there will be any decrease in earnings from other sources like underwriting and earnings from consolidated companies with >50% ownership) like Recipe, Grivalia, Sleep Country), in associates ($8b in 20-50% stakes like Eurobank, Poseidon and Quess) and the in common and preferred stock holdings (~$10b in <20% stakes like Commercial International Bank, Occidental Petroleum, Mytilineos and Kennedy Wilson). And as the ~$4b in earnings for the next few years roll in, a lot of them will be going to increase the $44b bond portfolio, too, so interest rates may well be lower in a few years, but those rates will be applied to a much larger fixed income portfolio, so lower rates in a few years don't even necessarily mean lower total interest income.

Interesting article on Indian social norms: https://www.strangeloopcanon.com/p/life-in-india-is-a-series-of-bilateral?utm_source=multiple-personal-recommendations-email&utm_medium=email&triedRedirect=true He talks about how immensely Indian infrastructure has modernized and improved, while some things like traffic behaviour remain chaotic. Bonus: compliments to our beautiful Bangalore airport.

Yes. The companies are related - they have a common history and they even have the same logo! Seaspan Corp (mostly ocean transport) was spun off from the Washington family owned Seaspan ULC (tugboats, ferries, shipyards); the Washington family still owns part of each of them, but Fairfax only owns the Seaspan Corp side (the parent company of which was called Atlas but is now called Poseidon.)

Yes, I probably get ripped off by TD with a bad spread when I buy or sell FRFHF there. I should probably just move everything over to Interactive Brokers where they treat you properly; the only reason I keep the TD account is (i) inertia and (ii) it's such a pain to trade there, for a variety of reasons, including the US$10 brokerage fee per trade, that I almost never make a trade (with a few exceptions; Muddy Waters, now Milton.) Making it difficult to trade has probably indirectly saved me a ton of money by making me just leave my now ~50% Fairfax position alone. If I could be sure I would respect my vow not to sell FFH at less than 2x book, I would just transfer all my funds over to IB. Ideally, IB would set up a validation machine that would force me to insert my thumb to be painfully crushed for 60 seconds in order to go ahead with a sale of FFH shares. In the meantime, I let TD provide equivalent pain with no interest on cash balances, high transaction fees, usurious forex rates, and a crummy interface, but I get great returns...

I own it all in USD (FRFHF) principally because I like getting the USD dividend in a US$-denominated account. In my TD accounts where I have my Fairfax shares, when I got a dividend in a Canadian account, TD thieved off 2% in converting the US$ dividend into CAD. Wouldn't be a problem if I owned it in my Interactive Brokers account, but my Fairfax holdings go back to a time before I had an IBKR account (>15 years ago). Trading volume is about the same for the TSX (FFH) shares and for the US$ OTC shares anyways, so it makes sense for me to hold it on the US side.

oh yeah, thanks. Just goes to show, the way the stock has been rising, September prices seem like a great deal, limited time only!