dartmonkey
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Posts posted by dartmonkey
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1 hour ago, Luca said:
What i meant is that if Fairfax India keeps compounding nicely, i think the book value will get back to something around 1x book from the current 0.7x book. So we wont only capture the book value gains after fees but also the closure of the discount. I hope my logic is understandable.
So for me, buying this for way less than book gives possible extra returns, if India and Fairfax India gets in favor after outperforming in a decade or so.
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.
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Fees will eat up returns of the closure to book value so one could say at current valuation and closure in year 10, we are getting the pure returns by Fairfax India for free. Looks like a pretty nice bet.
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.
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33 minutes ago, Crip1 said:
Dude, you are speaking my language.
Considering FFH is my largest holding, by far, I clearly like the company and the story. But, there is one aspect of Fairfax that is highly problematic, IMHO, and that’s Prem’s reluctance to candidly admit errors. Buffett has always been extraordinarily good at this and I think it’s healthy for any individual, especially one in a leadership position.
It is almost impossible to change unless there is valid reason, and the valid reason needs to be admitting errors or, at minimum, admitting that things could have been done better. Prem is reluctant to do this. He was looked at very favorably during the financial crisis based on how well he navigated Fairfax through that. The ensuing 8-10 years were substantially less successful. Will we see a repeat now? I don’t think so, but I am not as sure with Prem because of the lack of candidly admitting errors.
-Crip
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).
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Just now, dartmonkey said:
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.
Sorry,, I mean $1013, up $23...
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4 hours ago, DM1 said:
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.
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15 hours ago, glider3834 said:
Worth considering loan mix (skew to residential multi-family/student housing) and completion guarantees in addition to the LTV
All of the Loans are secured by real property located in the United States with an average loan-to-value ratio of approximately 51% and are supported by completion guarantees issued by the project equity sponsors. More than 70% of the Loans relate to multifamily or student housing development projects with the balance being a mix of industrial, hotel and life science office property development projects.
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.
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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.
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20 hours ago, SafetyinNumbers said:
Fairfax showing some good timing. They participated in a financing in December 2022 for €50M and are up over 100% since including the warrants.
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?
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On 5/22/2023 at 7:12 AM, gfp said:
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.
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On 5/16/2023 at 9:12 AM, nwoodman said:
Recent interview with Prem. Connection was a little sketchy, so it is somewhat fragmented. Greece is going gangbusters, economy grew by 5+%. Elections next month. Eurobank divs likely to start next year. Touches on some minor acquisitions they have made. Also calls out the investments made by the major tech companies who have set up regional cloud infrastructure in Greece.
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
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3 hours ago, ICUMD said:
Hard to fully anticipate, but I suspect iDBI is a prized asset. Either Kotak or Fairfax will work with officials to discuss options to make the buyout possible, rather than walk away. Maybe it does mean that Fairfax needs to join CSB with IDBI.
Now just a hunch, but RBI could prefer the Fairfax India offer since Kotak is much larger than CSB. 2 large banks (Kotak + IDBI) combining would undermine competition vs a smaller bank (CSB) and larger (IDBI). They may also wish to attract more foreign ownership in banking.
Any idea why Fairfax would be so reluctant to merge the 2 banks?
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2 hours ago, Ghost said:
Thank you, that is a 2.2 billion change in accounting treatment. Does that imply in a large cat claim, the losses would be magnified with the new accounting methods?
I hope some of the investment accounting experts here will answer, but in the meantime, I'll take a stab, and say yes.
Here is the somewhat opaque text issued by FFH:
The Company’s preliminary estimate of the effect of IFRS 17 on common shareholders’ equity is that it will increase common shareholders’ equity as at December 31, 2022 by approximately $2.2 billion (an increase in book value per share of approximately $94), primarily reflecting the introduction of discounting net claims reserves (approximately $4.7 billion, partially offset by a risk adjustment of approximately $1.7 billion for uncertainty related to the timing and amount of cash flows arising from non-financial risks), partially offset by the tax effect of the measurement changes and other of approximately $0.8 billion.
In other words, the major change is an increase in book value of $4.7 billion because of the discounting of net claims reserves. I suppose that a large cat claim COULD fall under that category, if the distribution of claims was a long time in the future. So a supercat happening today that Fairfax anticipated having to pay out $1b but only 10 years later would not result in an immediate charge of $1b to book value, but rather, an amount that corresponds to the discounted cash flows expected over the next 10 years - that could easily reduce it by half, I would think. So if the claim is routine (life insurance, say), the effect of discounting would be small, but for a claim far in the future (asbestos liabilities, for instance), it might almost make the claim disappear. That would be tantamount to recognizing some value for float.
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4 hours ago, Crip1 said:
Investing returns is a simple numbers game, there are no style points for leveraging the knowledge/acumen of others.
-Crip
No, I know, I didn't mean to sound critical - I think most of us would be happy if Fairfax's equity investments more closely resembled Berkshire's!
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3 hours ago, TwoCitiesCapital said:
Isn't IDBI for Fairfax India? It's not competing for the same capital as Fairfax Financial's uses.
Yes, so it seems. Nothing to do with FIH.
While we're on the subject, it seems the federal and state governements would go from a combined 95% stake to 34%, which raises questions of whether they intend to maintain control. This article (https://www.vccircle.com/rbievaluates-fairfax-backed-bank-other-potential-bidders-for-idbi-bank) suggests that the answer is no, but can anyone translate into ordinary English what the last sentence means? :
The RBI is also conducting a "fit and proper evaluation", including extensive background and financial checks on the potential buyers, a crucial step before an investor is allowed to pick up stake in a local bank, the people added.
Potential investors have raised questions around the extent of government control in IDBI Bank after the divestment since it will retain a 15% stake and LIC, a government company, will have a 19% stake, two of the people said.
"The government does not intend to have any management control," one of the people said. "The government will take a call if a written submission to that effect is needed."
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On 5/15/2023 at 7:54 AM, Luca said:
Micron now the biggest holding for Fairfax for the US in latest 13 F. Atlas was sold 100%, 220% increase for Occidental. Interesting!
It's interesting to see how many Berkshire picks end up in Watsa's portfolio. There was already some Occidental and Chevron, and now more Occidental, just like in Berkshire, and no additional Chevron, while Berkshire is selling Chevron. In banks, both companies used to own Wells Fargo, and now, both have big positions in Bank of America (although Fairfax also owns a bit of Citigroup and Bank of Nova Scotia). Just one car builder in both portfolios, and it's GM. Both had Taiwan Semiconductor, although Berkshire has sold its stake recently. Activision arbitrage - yes, in both cases, but both have been reduced this quarter.
Great minds think alike? But it seems like a bit too much overlap for it to be coincidence.
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On earnings outlook
V.Watsa
"For the first time at our 37-year history, I can say to you, we expect, of course, no guarantees, our operating income to be more than $3 billion annually for the next 3 years.
Pretty amazing, for a company with a market cap of $17b (USD); in other words, the company is expected to earn half its market cap in the next 3 years, with no reason to think it will have less earnings thereafter. I increased my already indecent stake to almost 50%; I know of no other company with such a likely return of 100% or so in the next few years.
But what is this V. Watsa business? Does anyone know what the V stands for?
Fairfax was founded in 1985 by the present Chairman and Chief Executive Officer, V. Prem Watsa
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Just thought I would point out that Fairfax is damned if it does and damned if it doesn't.
Woodman mentioned that FIH shareholders may worry that Fairfax won't treat them fairly: "Often the rug gets pulled just before the real value accretes. Of course this time might be different." And others wonder, if it's such a good deal, why doesn't Fairfax just buy them out, or at least purchase more shares?
As others have pointed out, Fairfax is buying some, but not all, directly and via FIH's own repurchases. But they set this thing up for outside shareholders to get involved, and to get some extra management fees, so it would be a bit rough to just buy them all out now. I guess they are trying to find a middle way, where they buy some but not all, which probably doesn't make anyone happy maybe but which seems to me like a reasonable compromise.
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6 hours ago, giulio said:
FWIW
Insurance company boilerplate:
"...industry forsakes underwriting discipline and overly focuses on topline growth even as rate decreases accelerate. This is where <insert insurance co. name here>'s culture of underwriting discipliune is most apparent, as we cut exposure and prepare for the return of Stage 1."
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A buyback based on the company thesis of discount to intrinsic value forces a certain fixed outcome. A re-invested dividend, allows each shareholder executing on their specific view of intrinsic value and their desire for margin of safety to it.
I think there is a certain mental view that a dividend is just money wasted whereas buyback below intrinsic value is not. That shouldn’t matter from a shareholder point of view (tax-free environment). In both cases, $1 billion leaves the company coffers never to be seen again.
I think you can see it both ways. If it's a dividend, the dividend receiver is free to buy more shares, if she thinks they are cheap. If it's a buyback, the shareholder is free to sell some shares, if he thinks they are expensive. In both cases, some shareholders will be happy (because the company did the transaction they approve), and some will be forced to do their preferred transaction themselves.
For my part,, I think the company should repurchase shares, because the company feels they are cheap, and shareholders that disagree should be selling their shares anyways.
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Universalna Insurance Company (“Universalna”) was acquired by the Fairfax group in November 2019 and is one of the leading companies in the Ukrainian insurance market.
Universalna has 32 licenses and offers more than 150 different types of insurance products. Universalna employs more than 300 employees and, in 2019, generated annual gross written premiums equal to UAH 950 million (approximately UAH 23.8075=US$1).
I haven’t seen any discussion about how Fairfax might be affected by the Russian invasion of Ukraine. I guess there are two questions : first, the impact on Universalna’s operations per se. $40m in premiums is less than 0.2% of Fairfax’s $28b in gross premiums written last year, so this seems like it is unlikely to move the needle, but it’s hard for me to believe I would be bothering with insurance if I were living in Ukraine right now (although I could be wrong.)
And second, whether any of the life and property destruction is covered by the company. Does anyone have any knowledge of this? Were these questions addressed at the general meeting?
TIA
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According to the 2021 annual report (p.11), FFH owned 43% of Exco, meaning it is treated as an associate, with equity accounting (which holds for non-controlling stakes where FFH owns between 20% and about 50%). That stake is held at a carrying value of $195m but had a market value of $267m, as of 2021-12-31.
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3 hours ago, gfp said:
A $17 Billion market cap must be in Canadian dollars but I think the rest of your figures are in US Dollars, correct?
yes, that’s right. So the Atlas stake is C$2.4b, an even bigger part of the C$17b market cap, ignoring the deferred tax. Thanks for the correction.
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Wow. The Atlas position was already big, rivalling Eurobank for the biggest equity position, with 100m shares for a total value of $1.5b. Eurobank was at $1.4b; Stelco and BDT are at $540m, and Resolute, Quess, ShawKwei, Blackberry, CIB, Kennedy Wilson are all between $300 and $400m) Now with 25m more shares, and still with warrants for another 6m, Atlas will be over $1.9b. All of Fairfax has a market cap of $17b, so this is now over 10%. Not quite the size of Apple within Berkshire, but Atlas probably has more room to run...
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23 hours ago, Xerxes said:
get a new "mark" closer to BV of $15-20, thereby lifting its carry from $10 to a higher number, thereby helping pushing FFH's BV close to intrinsic value. Why would a third party want to buy a piece of FIH from Prem when they can buy it cheaper on the market. Liquidity perhaps ...
I'm not following this logic. If I wanted to invest in FIH's holdings, wouldn't I be better off getting them through FIH at 60c on the dollar? A 40% discount pays for a lot of years of Fairfax management fees, and the discount is not likely to get even larger.
Fairfax 2023
in Fairfax Financial
Posted
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!