petec

Personally I think you are framing this wrong. Both FFH and BRK were built by investors who got into insurance for float. Insurance isn't a great business and neither of them has ever said it is. But done well, it can provide low cost funds for investing. Both companies are led by people with investing in their DNA who absolutely believe they can outperform the markets over time. I also find it amusing when people on investment boards, who are presumably there because they are interested in stockpicking and think it is worth doing, advise other people to index. Not a criticism, but always makes me smile.

You and me both. I then did a great job of adding every time markets went down and the stock spiked. Finally achieved some absolution by adding in size at the bottom of the covid selloff - first time I got it right and the only reason I feel good about how I managed the position The good thing is that my "hedge" via FFH put me in a psychological position to hold some great stocks 2010-2020, so actually I did OK despite having >25% in FFH at times. And then FFH took off like a rocket ship. Weird how things work out.

Viking - thanks for working this through. I have been meaning to do it for ages! This is one thing I wish FFH would change in their reporting - the reported difference between carrying and fair value for equities would be more useful if it included FIH on a look-through basis. By my rough maths this adds $20-25/share to FFH's "BV at fair value".

+1. Dividends are great for most companies, and I love Prem's salary and (therefore) alignment via dividends.

For three years, or long term? If you mean long term, what interest rates and CR do you need to get there? Genuinely interested and you're much closer to the numbers and modelling than anyone else, so value your view. We will have to disagree on that. One of the structural underpinnings of my investment philosophy is that the market overpays for visibility. I therefore spend my time trying to find things where things could go very right, but not very wrong, at the going-in price. That kind of optionality is often underpriced, and it strikes me as highly rational to take those bets.

I'm certainly not suggesting FFH is overvalued. More just saying that it isn't the layup that it was, and wondering about my position size. I spent most of 2010-2020 thinking exclusively about what could go right! Now that they are, it is time to start thinking about what might go wrong. I think this is an excellent framework. Worst case for me is BV $1300 in 3 years and stock at 0.8x on low rates. Not a terrible outcome.

I actually disagree with this. Most of the decisions that have led to the current metrics had been made in 2019, and some of them much earlier. They were short duration. Most of the big equity investments that have moved the needle were already there. They were limiting premiums in a soft market, waiting for the hard market. I think (can't remember the exact timing without checking) that they had already started to wind down the hedges. Very few people on here were prepared to pay for the earnings potential then, despite a sometimes significant discount to book. Today, all those decisions and that patience are paying off in droves, so the potential is obvious, and there's a huge love-in, even at 1x book (which remember is arguably inflated vs peers due to goodwill and the marking up of things like GIG). Interesting debate - thanks all.

I preferred this investment when one didn't have to count on such things - they were available for less than free. FFH is still my biggest position by far (17%) but I am wondering how long I should keep it there.

I happen to agree with this entirely, but don't forget this is the same board that KNEW that Prem was stupid from about 2011 to 2021, so sentiment can shift

Sure - but if investors can't make reasonable returns in fixed income they go looking elsewhere, driving capital into all sorts of things including insurance. lower rates did NOT drive a hard market in the 2010s - why would the extend this one?

In theory, but this is not what happened during the 2010s, in my view.

Apologies if this has been discussed upthread, but how do people feel about Fairfax at USD900 if rates fall from here? In my view rising rates have been the most significant driver of earnings over the last few years. I do not mean to detract from all the other good things that have happened, but higher earnings on the bond portfolio AND premium growth AND lower combined ratios have transformed operating earnings. All three are largely driven by rates: bond earnings obviously are, and I suspect premium growth and lower CRs are too since rates drive tourist capital in and out of the industry. If so, then a return to significantly lower rates would cause operating earnings to drop back down, possibly significantly. The next 3 years of earnings are somewhat locked in (especially in bonds) but the three years after that could look very different. Book value will probably be in the $1300 range by then, but the stock has clearly traded below book when interest rates are low. How does the stock react if the 10y goes back to say 2% over the next year or two (regardless of how likely you think that is)?

I have often wondered whether FFH would take them out at some point. Bring another great capital allocator on board with expertise in a specific/different industry and the ability to raise 3rd party capital and generate fees.

Just amazing. Prem hasn't done badly on his personal 2020 investment, either!

Really? Did I miss something?

Europe is not uninvestable, but you should treat it as an emerging market with more debt and less growth, in my view.

Enjoy the family time!

How's this looking?

That sounds fantastic. Anyone else? 17th works best for me but could also do 15th and 16th.

Hi all. I have a feeling there's been one of these threads before but I was wondering if we have many active UK based members. If so, if anyone fancies a beer at some point let me know. Pete

Thanks!

I'm not sure I really agree. I can't prove this but my sense is that plenty of companies are allocating more to debt, buybacks and dividends than they would have done in previous cycles, and less to growth. I guess it depends how you define ESG. I do think some of the production now is a result of $120 oil last year. And I think the days of rapid short-cycle shale growth are likely over except at higher oil prices. My guess is oil spends most of the next few years in a 60-100 range and there are plenty of companies that are undervalued there.

Yes, possibly, although the bank is fairly well capitalised and analysts have to choose what to do with newly generated capital in their model. This one may simply have "chosen" to pay it out rather than let it accumulate.

At current fx this is about USD385m a year to FFH, or a 2% yield on Fairfax's market cap.

Absolutely. I think they are socking away significant future reserve releases at this point. Combined with rising long rates, I think we are locking in several years' worth of nice operating earnings, and I am bullish on the portfolio.