petec

Yeah I need to think this through. My gut sense is that without a lot more info on what they actually shorted, and how, we can’t be sure. Happy to be contradicted. One broader question I have is this: the bond team here is meant to be superb, yet they never spotted the opportunity that Ackman did. I wonder why.

Xerxes do you have any evidence that they initiated new shorts in 2020? Or is it a gut feel?

That’s all fine, but none of it argues for predictable, modellable cash flows. That won’t happen.

Thanks for posting. Great summary. Hopefully the FE IPO is successful. Technology companies need $ to scale and the IPO should help in the near term. It looks like it will take a few years for FE to become profitable. Fairfax needs an exit strategy on these types of investments (the ones that do not play out as they expected at acquisition and this one clearly has not). There needs to be a limit of how much $ they commit. The big reason is Fairfax is, at its core, an insurance company. And if it wants to be valued at BV or (dare we hope) a premium to BV it needs to have earnings that are somewhat predictable. The non-insurance operations cannot keep driving $100 or $200 million write offs every year (as assets are written down). These write offs happen far too much. The good news is i think we can see a trend. In the past 12 months, APR was sold to Atlas. Fairfax Africa was merged into Helios. Farmers Edge IPO. And it appears Fairfax is not done. 2021 is certainly shaping up to be a busy year for Fairfax. Nice to see Fairfax motivated to act and take advantage of current market conditions. I am looking forward to the day when the non-insurance companies generate large and consistent free cash flows for Fairfax each and every quarter... when analysts are able to model that in their estimates we should see a nice increase in multiple to BV with target prices. PS: it is not surprising that Fairfax keeps saying that Digit is now profitable. Another headwind will become a tailwind as results are reported in the future. Of course, Digit looks like a home run. But still, it is nice to see more and more operations becoming profitable. Couldn’t disagree more. Prem has never managed the firm for consistent earnings and has repeatedly said he never will. If that means the stock trades below the multiple it could, good: more buybacks. What matters to me is how fast BVPS compounds over 5 and 10 year time periods, and that’s all. IMO, you need to go one more step. That BV needs to be converted at some point into cash flows available for use by shareholders. That requires either interest/dividends from the investment, or it requires a compelling, profitable exit-strategy. To date, that has been the shortcoming of the investment in BB shares (but the debs have been a bit better). Let us hope that this doesn't also end up being the shortcoming for Eurobank. SJ Agreed.

Thanks for posting. Great summary. Hopefully the FE IPO is successful. Technology companies need $ to scale and the IPO should help in the near term. It looks like it will take a few years for FE to become profitable. Fairfax needs an exit strategy on these types of investments (the ones that do not play out as they expected at acquisition and this one clearly has not). There needs to be a limit of how much $ they commit. The big reason is Fairfax is, at its core, an insurance company. And if it wants to be valued at BV or (dare we hope) a premium to BV it needs to have earnings that are somewhat predictable. The non-insurance operations cannot keep driving $100 or $200 million write offs every year (as assets are written down). These write offs happen far too much. The good news is i think we can see a trend. In the past 12 months, APR was sold to Atlas. Fairfax Africa was merged into Helios. Farmers Edge IPO. And it appears Fairfax is not done. 2021 is certainly shaping up to be a busy year for Fairfax. Nice to see Fairfax motivated to act and take advantage of current market conditions. I am looking forward to the day when the non-insurance companies generate large and consistent free cash flows for Fairfax each and every quarter... when analysts are able to model that in their estimates we should see a nice increase in multiple to BV with target prices. PS: it is not surprising that Fairfax keeps saying that Digit is now profitable. Another headwind will become a tailwind as results are reported in the future. Of course, Digit looks like a home run. But still, it is nice to see more and more operations becoming profitable. Couldn’t disagree more. Prem has never managed the firm for consistent earnings and has repeatedly said he never will. If that means the stock trades below the multiple it could, good: more buybacks. What matters to me is how fast BVPS compounds over 5 and 10 year time periods, and that’s all.

Perhaps because Fairfax needs to increase its ownership position to 74%. Bangalore Airport was only revalued to a ‘proper’ valuation AFTER Fairfax had built its position to what it wanted :-) Ha! Fair point. I’m just surprised they had a choice. Maybe the fundraising was too small to cross a materiality threshold. I have to say I think building Digit and then taking it to other markets is a really exciting prospect. I think Digit will be a big driver of value over the next 20 years, as ICICI and First Capital were.

BTW does anyone understand why Digit’s carrying value won’t rise to the new mark? They said it wouldn’t on the call but I don’t know why.

My point is that Digit would have to sell a lot of shares for Fairfax to go to 74% *and* and IPO. It’s possible. Just doesn’t seem likely.

Yeah remember Digit is not in Fairfax India. That’ll be referring to Anchorage/Bangalore Airport plus potentially others.

I’d be amazed if they IPO’d Digit at this stage. They said on the call that the Indian govt has now passed a law allowing them to go to 74% and they want to do this. I suspect this is what’s motivating the sales of Riverstone and Brit - effectively swapping these stakes for more Digit, which is a very smart move IMHO. But I don’t see how they’d do that while IPO’ing Digit, realistically.

Excellent work, thanks! If you’re right on the $59 pretax then we are approaching $550 per share all in.

Boat Rocker just filed to IPO.

What was said? Rough version: Called in and told him he needed to step away, he wasn't paying attention anymore, and had lost his touch. Continued by saying that Prem didn't understand any of the companies he was investing in and wasn't doing any detailed analysis on microeconomics, his partners agreed but were Canadian so too nice to tell him, and the bankers were cowards not asking hard questions because Canada doesn't have enough good companies. Sounds like Sanjeev. Kidding!!! Ha ha!! I'm listening to the call now. Let me see who this twat was! Cheers! Don't know who it was, but you could tell that they have very little understanding about how much analysis goes on at Fairfax when selecting investments. I'm probably one of a very few handful of people who has actually seen the internal workings and spoken to all of the analysts, portfolio managers, core group in detail over the years, and does not work for the company. This guy has no idea what he is talking about! Cheers! I have no doubt that you are right. Or more accurately I flipping hope you are right! But in fairness to the questioner, Prem's explanation of his investments is always highly simplistic, and usually revolves around people not microeconomics. We think John Chen is great!!! We believe in Blackberry!!! We bought Exxon on a 10% dividend yield!!! You can get away with that when you're knocking it out of the park, but you have to assume people will question your thinking when you're not. In my view it would do Prem no harm to adopt a more structured, numbers-based approach to explaining his investment theses. 90% of people wouldn't understand. Buffett says he writes his letters in a way so that his sisters could understand what he's investing in. The other issue is that if you say TOO MUCH, then shareholders linger on every tiny word you've said. For example, Prem's said he won't short again...no matter how great the opportunity, or perhaps necessary to protect statutory surplus?! Investors would be jumping all over him again if he shorts. So it's a balancing act between enough information and not too much information. If people really want to know the depth of their analysis and thought process, come to our annual dinner in Toronto. They get very deep into it where they can, especially past holdings. Cheers! Yeah I know there are drawbacks both ways. Personally I don’t think Prem gets the balance quite right, but that’s just my opinion. And yes, I’ve been to the dinner, but just once. I fully intend to return!

Well, I could be totally wrong, but the wording "entered into an arrangement with RiverStone Barbados to purchase certain investments owned by Riverstone at a fixed price" suggests to me that this is not an option. It's an agreement. It will happen.

From what I could understand, FFH basically wrote a put on the public equity portfolio in order to derisk the Riverstone purchase for the buyer. Presumably if they sell positions before then, it reduces the size of the put. I'm not sure it is a put. That implies CVC has the right to choose whether to put the investments or not, which would imply FFH can't win. The wording implies to me that FFH have simply underwritten the value of these investments. FFH might lose, but also might win.

Not at all. Probably me being stupid and not seeing links. Plus I'm interested in natgas and Peyto so it's all good!

Am I missing something? I feel like we just changed the subject!!

What was said? Rough version: Called in and told him he needed to step away, he wasn't paying attention anymore, and had lost his touch. Continued by saying that Prem didn't understand any of the companies he was investing in and wasn't doing any detailed analysis on microeconomics, his partners agreed but were Canadian so too nice to tell him, and the bankers were cowards not asking hard questions because Canada doesn't have enough good companies. Sounds like Sanjeev. Kidding!!! Ha ha!! I'm listening to the call now. Let me see who this twat was! Cheers! Don't know who it was, but you could tell that they have very little understanding about how much analysis goes on at Fairfax when selecting investments. I'm probably one of a very few handful of people who has actually seen the internal workings and spoken to all of the analysts, portfolio managers, core group in detail over the years, and does not work for the company. This guy has no idea what he is talking about! Cheers! I have no doubt that you are right. Or more accurately I flipping hope you are right! But in fairness to the questioner, Prem's explanation of his investments is always highly simplistic, and usually revolves around people not microeconomics. We think John Chen is great!!! We believe in Blackberry!!! We bought Exxon on a 10% dividend yield!!! You can get away with that when you're knocking it out of the park, but you have to assume people will question your thinking when you're not. In my view it would do Prem no harm to adopt a more structured, numbers-based approach to explaining his investment theses.

Did you guys catch the bit on they are investing in mortgages? Did I hear that correctly? Was it mortgage or mortgage related bonds...? Low interest rates, are they looking for yield. Cheers! Yes - I think this is the $2bn announced earlier with Kennedy Wilson.

My favourite bit so far: "the stocks we own...we think they are very undervalued...take that with a pinch of salt".

Fair value of associates is now above carrying value by $712m or $27/share. So adjusted BVPS is $505, before any share price moves in January. Digit will not be revalued to reflect the financing announced in Jan.

I agree, but I am also speculating!

I feel like I ought to run this poll again after the 4q numbers...

Noted, sorry!

No reason why they’d have shorted BB before year end though, so it’s not BB.