dartmonkey

Berkshire 2022 AR (p. K-70). Hard to beat for short duration, and a nicely timed shift in 2022, just like Fairfax: December 31, 2022 2021 ASSETS Insurance and Other: Cash and cash equivalents* $32,260 $85,319 Short-term investments in U.S.TreasuryBills. 92,774 58,535 Investments in fixed maturity securities 25,128 16,434 Investments in equity securities 308,793 350,719 Equity method investments 28,050 16,045 ... Total 725,989 741,993

Despite my general dislike of Trudeau and his inept woke government, I was prepared to give them the benefit of the doubt regarding this spat with India - you can’t just stand by when a Canadian citizen is murdered in Canada by a foreign government. But I may have been wrong to presume we had good evidence for this serious allegation : https://nationalpost.com/opinion/canadas-remarkably-slapdash-assassination-accusation

That would indeed be worrisome, given Watsa's pretty unambiguous promise in the 2018 report: In the past, to protect our equity exposures in uncertain times, we shorted indices (mainly the S&P500 and Russell 2000) and a few common stocks. After much thought and discussion, it became clear to me that shorting is dangerous, very short term in nature and anathema to long term value investing. As I mentioned to you in last year’s annual report, shorting has cost us, cumulatively, net of our gains on common stock, approximately $2 billion! This will not be repeated! In the future, we may use options with a potential finite loss to hedge our equity exposure, but we will never again indulge anew in shorting with uncapped exposure. Your Chairman continues to learn–slowly!! repeated in 2021: I said in our 2019 [sic; but I think he meant 2018] annual report that we would not short stock market indices (like the S&P500) or common stocks of individual companies ever again, and our last remaining short position was closed out in 2020 (not soon enough, as it cost us $529 million in 2020). If he renegs on this promise, I think people would be furious. Even though I think shorting the market would probably work out well at current prices, with the company doing so well since the end of the shorts, I dare to hope that he has ruled out shorting too clearly for him to just go back to doing it again.

Agreed about the S&P, but it's small ($30m), I wonder if they acquired it somehow and haven't gotten rid of it yet. Seems contrary to everything they usually say and do. As for Occidental, at $354m it may be #1 in the 13-F, but it's really small potatoes compared to the huge bond portfolio, the big private companies they own, notably Eurobank and Atlas/Poseidon (each about $2b). Even Thomas Cook is bigger (about $400m), and Mytilineos is about the same size as the Occidental bet. And of course, the dreaded Blackberry is even smaller, fading into obscurity (thankfully!)

Exactly. I like to think my portfolio is half cash, half conservative stocks. Except that the cash half is actually levered 2:1, plus a dollop of underwriting income and savvy investing in gems like Eurobank, Poseidon and (lest we forget the downside) Blackberry...

Yes, there is a recent thread on this forum about historic landmarks, but maybe one landmark that we are within spitting distance of touching is price to book, which is getting close to 1. Q1 common shareholders' equity $18,663.8m (USD), market cap $18.574 as I speak (using the FRFHF quote). We will have a new book value in a few days, and it will be much higher than $18.6b (any guesses?), so we will still be trading well beneath book value, but it's heading in that direction...

I'd just as soon it doesn't get so big that it can't keep the same high returns on capital, and repurchasing stock (especially over the last few years, but even now) is a good way of doing that. And, together with the dividend, it makes it hard to compare with other Canadian companies that have more or less return of capital to investors. But more important to me is that MY market cap keeps climbing up, even if Fairfax's stays the same because it is pouring more into my account...

It seems to me that this possibility of more climate change disasters (although this is more of a fear than a current reality) is an opportunity for insurers, not a threat. Of course if the risk increases, rates will have to go up, but this just expands the total addressable market of the insurance industry. In the same way that fully self-driving cars might drastically shrink the auto insurance industry, more hurricanes or flooding or fires might expand it. That may not be good for humans, but it’s good for insurance companies.

Yes, every time I see a FIH report indicating how brilliantly this tiny investment is doing, I have another little wrench...

Yes, of course you are right, I just used the same dates that Brooklyn Investor used to show that Berkshire is the real thing, the Berkshire wannabees are also-rans. I just wondered if that particular fairly non-natural 11.5y period might have been not quite so bad, if one counted dividends. The answer is no, it takes us from 4.6 to 6.9% annualized, still a long way from Berkshire's 13.9%. Of course Fairfax looks a lot better if you include the big macro bet put on before the global financial crisis that paid off handsomely. And the period chosen is the almost the worst imaginable period for Fairfax, beginning about the same time as the catastrophic shorting adventure. hopefully behind us now forever. Going back a bit farther, things are not so bad. And also, hopefully, going forwards a bit farther will do the same trick...

I did the calculation too, since I wasn't sure whether Brooklyn Investor had included the dividends. You can do it with FRFHF in USD ($10 dividend every year) or with FIH in CAD ($10US dividend converted to CAD at prevailing exchange rate). There's still a big gap with BRK, but it does narrow a bit: So 13.9% from Berkshire, and 6.9% from Fairfax still hurts, but it's not as bad as the 4.6% you would calculate if you ignored the dividend. FIH gets a better return, but only because the exchange rate has gone from rough parity in 2011 to 1.33 now. To compare apples with apples, Berkshire's 13.9% in USD has to be compared to the FRFHF return in USD; a Berkshire investment in USD would be even better than 13.9% annualized for a Canadian, who would also benefit from having invested in USD. Boy, it's pretty depressing typing in those FRFHF share price numbers, going nowhere, with share price lower in January 2021 than in December 2011, almost 10 years prior. Hopefully that's over at last!

Agreed. Remembering the successful Bank of Ireland investment, they purchased 8.7% in 2011 for 0.10 eurs, and sold most of it in 2014 and 2015 for between 0.33 and 0.36 euros, and cut it further from 2.9% to 1.5% in 2016, and the rest in 2017, for a total profit of over $1b US. (In the 2002 AR, Watsa called Richie Boucher from the Bank of Ireland Fairfax's 'first billion dollar man', with George Chryssikos's of Grivalia and Eurobank having his name added to this illustrious list. Interestingly, Boucher was on Eurobank's board from 2017 to 2020, so maybe it's contagious.) Anyways, the Bank of Ireland has not done much since 2017, going from about 8 euros to 9, and paying out 0.67 euros since then. Hopefully, Eurobank will not suffer the same fate, but if Fairfax lightens its investment a bit, there would be a good precedent.

According to the Q1 report, their bond position went from $29,001 on Dec 31st to $32,545 on Mar 31st, so they basically invested $2.5b of cash into bonds. 2y rates went from about 4% in January, to a peak of 5% in early March, and then back down to around 4% for most of April and May, and then, late May and June back up to almost 5%, as you note. 1y yields are a little higher, 3y yields a little lower. When I saw they had put about $1.4b of cash and short term investments, plus another $1b of Q1 earnings, into 1-3y treasury bonds with a duration of about 3 years, but not more, I thought they had maybe waited a bit too long again, but no, rates are back up to 5%. Would it have been better if they had hit the top 5% treasury yields (mid-March or right now)? Should they have held out for even higher rates? Who knows, but I am glad they have locked in $1.5b of interest and dividends for the next 3 years. They have some pretty significant earnings coming in this quarter (closing of Ambridge, for instance), so they may be able to sweeten the interest income stream a bit more, now, we will see. But with their pretty stellar track record of getting their macro interest rate calls right, over the years, so I am not going to criticize them for not hitting the exact peak.

The modeled probability of aggregate catastrophe losses in any one year exceeding this amount is generally more than once in every 250 years." It reads as though they mean greater than one event in 250 years, which would be greater than 0.4% chance per year with no upper limit. Yes, I'm sure from the context that they meant that the modeled probability of losing 15% of equity in any one year is LESS than 0.4%, not more, which would not be reassuring!

I think we agree, although you and I are both having trouble with typos! You mean it will compound nicely, if the share price (not book value) gets back to something around 1x book, right? And as Haryana more clearly put it, there are no fees (or, more precisely, only 20c of fees) up to the most recent book value, and only 1/5 of book value gains beyond 5% per annum, for book values higher than $18.85/share. Lots of asset managers and their shareholders have to live with share prices below asset value: Pershing Square is another good example. So a return of the share price to 1x book may be a bit optimistic, although of course it would boost returns a lot if it ever happens. But even if it doesn't, and we only track BV, returns are already not bad - despite a few lost years from the COVID scare and its devastating effects on the airport, along with a weakening rupee, BV growth per share was 8.5% up to last December. Even without a share value:book value narrowing, I could live with 10% BV growth, and won't begrudge Fairfax from taking one of those percentage points for its fee.

Not exactly. Book value is now $18.85 per share by my calculation (March 31st equity $2,598,273,000; shares 137,815,952), share price $13.65, but don't forget the fees have already been paid for book value up to . Fees are paid based on book value, not share price, and they are 1/5 of BV increase beyond a 5% annually (this December 31st is the end of the 3rd 3y calculation period). They are paid every 3 years if book value is higher than the previous highwater mark, but (I think) not reimbursed if there is a book value drop. But they are accrued, based on each trimester's BV, and as of March 31, there was a fee accrual of 20c/share. In other words, there is 20c per to be paid if book value on December 31st is the same as it is now. But whether the share price climbs up to book value of not makes no difference to the fee.

How about this: 2019: In the past, to protect our equity exposures in uncertain times, we shorted indices (mainly the S&P500 and Russell 2000) and a few common stocks. After much thought and discussion, it became clear to me that shorting is dangerous, very short term in nature and anathema to long term value investing. As I mentioned to you in last year’s annual report, shorting has cost us, cumulatively, net of our gains on common stock, approximately $2 billion! This will not be repeated! In the future, we may use options with a potential finite loss to hedge our equity exposure, but we will never again indulge anew in shorting with uncapped exposure. Your Chairman continues to learn–slowly!! 2020: I said in our 2019 annual report that we would not short stock market indices (like the S&P500) or common stocks of individual companies ever again, and our last remaining short position was closed out in 2020 (not soon enough, as it cost us $529 million in 2020).

Sorry,, I mean $1013, up $23...

Even worse now, $1023! I hope the company has bought back a lot of shares since the first quarter report, but this opportunity for reinvesting way below intrinsic value may be closing up now. It will be interesting to see at what price they stop the repurchases.

Yes, there doesn't seem to be any indication that this is a distressed sector like office space. With 70% being multifamily/student housing, and the rest in industrial/hotel/life science office property, it doesn't seem like the LTV would be any different now from when the loans were initiated. I don't exactly know what 'science office property' is, but while the word 'office' is scary, in these work-from-home tiimes, from the way the deal is described, it doesn't seem like it should be a big part of the deal.

From the Dec 2022 PR, we know the Fairfax stake went from 3.985m to 6.688m (by virtue of buying 50m EU worth, at 18.50EU/share), and that they can buy another 50m EU worth at 20/sh. And that at some point in 2014, they had 7m shares. In Fairfax's 2016 AR, they had shres with a cost basis of 35.5m EU, which sounds like those 7m shares bought at around 5EU, ut then a year later, they had shares with a cost basis of 15.9m EU, so I guess they had sold a bit more than half. No mention of these shares in Fairfax's ARs for 2018-2019-2020, but then they had 3.7m shares in the 2021, and 4m by the end of 2022. So did they have those 3.7m all along, and just stop reporting them for a few years for some reason? And then bought 0.3m more in 2022, to get up to 4m, before buying their latest stake in December? I guess that's the simplest explanation. That would mean that there were 3.7m shares with a cost basis of 5.13 EU (announced in Mytilineos's 2013 AR you cited), and another 0.3m bought last year, so at about 15 EU/sh. That would mean that their cost basis was lower, only 123m EU, no 154m, so at the current value of 267m, they are sitting on a gain of 114%. But it is better to think of an investment in 2 phases: one of 4m shares owned for 10 years, up from 5 to 29EU (along with some profit taking from 3m shares sold in 2017, for an unknown amount), and the other one of 5.2m shares, up 50% in 6 months. Both (or probably, all 3) are more than satisfactory, to say the least.

So Fairfax controls 9.188m shares, 6.688m through shares and 2.5m through call options exercisable for another year and a half. They owned no shares in 2020 (at least, no mention of them in the annual report), and 3.7m shares according to the 2021 AR and then 4m according to the 2022 AR. I can't tell what price they bought them at, but the average price was about 13.5€ in 2021 and 15€ in 2022. Interestingly, they did own 7m shares in 2014 (5.9% of the company, a higher percentage of shares then that what they own now), but reduced that in 2017, and no mention of them from 2018 to 2021, so I guess they were probably sold. And that, despite what seemed like a long-term commitment iin 2013: "We welcome Fairfax to MYTILINEOS Group and we express our profound satisfaction for our future joint-course with a prominent long-term investor, headed by Prem Watsa, a global and most respected business leader, which is now the 3rd largest shareholder of MYTILINEOS Group. This development is evidence of Fairfax’s confidence in the MYTILINEOS Group’s potential and value, as well as in the capabilities and prospects of the Greek economy. " Anyway, if we guestimate that they bought the first 3.7m shares at 13.5€, 0.3m more at 15€, and knowing they bought the second block of 2.7m shares at 18.50€, and will buy a third block of 2m shares at 20€, that gives them a cost basis of 154m€and a current price of 256m€, for a nice 73% gain in about 2 years. But maybe they own this from much earlier? I don't know what happened between 2017 and 2021: perhaps they still owned shares but the position was too insignificant to report? Shares were sub-10 for most of this time. On the other hand, they reported a cost basis of 35.5m EU in 2016, which dropped to 15.7m in 2017, suggesting they had sold more than half, and then, no mention in annual reports until 2021, when it reappears with 3.7m shares. Anyone know what happened in the interim?

Yes, Fairfax owns only 10% of KW but they have billions invested via KW, so KW increasing their footprint by about 10% could be very good for Fairfax, particularly if Fairfax has invested alongside KW to provide liquidity for PacWest. On the other hand, no press release from Fairfax probably means that Fairfax does not have significant financing in this deal, so while this is probably a great deal for KW, it may have limited impact on Fairfax.

Owners of Eurobank and Grivalia, and fans of Greece in general, will be happy about the results of today’s elections there: https://www.wsj.com/articles/greece-holds-elections-amid-economic-recovery-and-political-scandal-f633ba7f

Any idea why Fairfax would be so reluctant to merge the 2 banks?