petec

I have not read the replies yet so sorry if I am duplicating, but 1) the insurance subsidiaries need capital to write premiums. There's a limit on how much they can dividend to the holdco for buybacks. 2) Price/value now isn't what matters. Price/value in the future is what matters. I don't have a view on ZZZ's future value but presumably FFH do. 3) Liquidity. FFH are already buying back shares, and probably can't do it a lot faster without finding blocks. They found one from Prem but may not be able to find others.

Why is this, please?

There are certainly a lot of barriers to entry, although the incumbents also have the disadvantage of legacy IT systems and new virtual entrants have made surprising progress in some markets. But barriers to entry are not economic moats. I think of a moat as something that protects an above-average ROIC over time. Legacy banks have to be 10-1 leveraged to reach mid teens ROEs. There's no moat. What you're going to get is commodity ROIC for a very long time so long as the leverage doesn't trip them up. I'm not saying that's a bad thing btw.

I'm not sure Eurobank has a moat - at least not one that protects its economics. Banking is highly commoditised, and net interest margins are dependant on Eurozone interest rates not going back to 0.

Wow. No direct benefit to Poseidon but their customers will be flush. Might be a direct benefit to Brookfield, after their purchase of Triton - not sure how much of their containers are exposed to spot.

I own BRK and don't plan to sell (which is not to say I won't, but my intention is to hold long term). I assume 5-9% REAL returns over very long periods of time with a very low probability of a genuinely bad outcome. My PRIMARY reason for holding is culture and management. You could assess this in any number of ways but the simplest is just to reiterate that all board members have to buy stock with their own money and don't get D&O insurance. This is incredibly different from most boards and I expect the behaviours to be different too. I think this massively narrows the expected outcomes. There is no incentive to take the kinds of risks required to compound at 15, 20, 25%; but equally the likelihood of really bad outcomes is very low.

The board HATED this investment when it was made!

Don't ILS also represent capital coming into the market? Why doesn't this depress prices? Seems to me the capital just comes in a different way.

Sure, but you can't be cute with the timing of offloading a big stake. That almost never happens at exact peaks.

They have to get down to 26% within 15 years of having completed their investments. Doubt this is related (too soon) but maybe this just makes them more willing to reduce near IV.

Lots has changed in the last year. Inflation fears have subsided somewhat, and FFH has has ratings upgrades. I suspect issuing 30-year debt at 6% is primarily opportunistic - it is a great piece of financing and likely highly accretive to equity value, so when the opportunity arises you do it even if you don't have an immediate plan for the money. My hypothesis would be that this opportunity wasn't there last year. Also FFH is bigger now, so all else being equal you'd expect debt to rise.

In fairness I think they have been executing exceptionally well for much longer. It's just that the *results* have come through in the last 5 years, partly because 10 years of sorting out the capital base have paid off and partly because higher interest rates boosted revenue.

If there is not a fair value adjustment, would this be reflected in Fairfax's "excess of fair over carrying" metric? I assume not, because I think the excess is only for investments, not insurance opcos (for example I don't think Gulf is included). But if it is in there it'll be +/- $13 per share pretax I think.

The ESI TRS was previously disclosed. I'm not aware of others.

+1 to both paragraphs.

Exactly. In effect the TRS locks in a buyback at the TRS price. Lovely stuff.

My take is that back in 2020 they bought swaps because they didn't have cash. Now they do, so they're swapping for direct exposure. In effect, they bought these shares at $1.31. Nice move. At the current price ESI trades on a roughly 50% free cash flow yield and is paying off debt every quarter.

Sure, but we are analysing the stock today. If it goes to $2000 we will be richer; this is good, not bad.

For me it was: Understanding of the fact (and I do think it was a fact) that FFH was a curate's egg of underappreciated value, and Something approaching blind faith in Prem. The latter is something I have thought about a lot. I was probably one of Prem's bigger defenders on this board during the dark years, and in particular defended his approach to macro. I was clearly totally wrong about that. But I also felt that a lot of the criticisms of his personal conduct and morals were wrong, and I felt he had built a culture that would win out in the end. It is interesting to see others come round to that view *after* results have improved. I have no idea whether I was smart or lucky. But I clearly wasn't as smart as those who didn't own this during the dark decade and then timed their re-entry well.

I think what you're saying is you want good family control not bad family control. In fact, I'm not sure you want *family* control at all. The Watsa family doesn't control Fairfax. Prem does. What you want is control, by someone good. Where it gets *really* interesting is when another good person inherits it and so good control becomes multigenerational.

This is fantastic. Thanks.

Yes - and one that would have been laughed at on here 5 short years ago!

The debt may not be arranged yet - in the last newbuild binge it was quite often finalised after the deals were announced.

Controversially perhaps, I would not actually characterise Stelco as a commodity play. It is a processor. When there is a fat spread between inputs and outputs it does well, when there isn't it does not. It's not a producer, with relatively fixed costs and variable revenues. I also own Ensign. Phenomenal levered exposure to the slow tightening of the north American land driller market (driven by wear and tear and rigs going overseas), trading at a 50% free cash flow yield.

The only thing that really matters in the long term is culture. Fairfax has that in spades. That's the advantage of having a controlling shareholder. And it is the moat.