petec

Sure. But they own BNSF, and control its cash flows, and there isn't a market price. Not so Eurobank and Seaspan.

I 100% get that sense. Their marks to model in India are super aggressive. And, they’re trying to go the same route with Africa. But, you just have to look at the compensation system to see the benefits to them, and why their judgment probably gets clouded. Of course, now they’re in the same boat as Biglari, where it could be years before their next performance fee payout. It's not the scale/aggressiveness of the marks. It's the accounting structure. More and more of the equities seem to be consolidated or equity accounted, so that stock market moves don't affect BV. I can't decide whether I think this is a great way of enabling them to focus on the long term or a naughty way of disguising losses.

On this topic, it seems to me that Fairfax may have been deliberately reconstructing their equity portfolio to reduce M2M volatility. Does anyone else have this sense?

Must you tempt fate? ::)

Anyone who has 23 Bloomberg screens has serious issues.

Relevant follow-up about potential costs (workers comp in California) which is important for Zenith. The ongoing development (not in the sense of recognized reserve development but in the sense of the social inflation threat) is definitely positive. Absent future adverse legislation, costs appear more and more manageable. Even if there is unusual flexibility to submit claims, Zenith will have to opportunity to rebut the claims and influence case law. It appears that Zenith will be able to report reasonable estimates in the coming quarters. https://www.wcirb.com/sites/default/files/documents/rb-covid19-cost_impact_of_governor_executive_order_0.pdf ... The document was a nice walk through on how the costs can rapidly accumulate. So in California, they are estimating a mid-point of 7 loss points and a bound of 10 or 11 points, and that's before any government programming or reinsurance. If that applied across the US, that would be no problem at all for Zenith. Beyond that, on a personal level, I am surprised at how small the indemnity is for a health care worker fatality. Only $400k each and that includes medical costs as well as 5 or 10 years of economic support to surviving spouses and children? The bulk of the workers dying must be personal support workers who don't earn so much? I think I trotted out an assumption of about 5X as large, but admittedly, I just pulled that out of my ass because I know so little about WC. SJ Perhaps the saturation point has been reached for this topic but the California workers comp Bureau just came out with an interesting report: https://www.wcirb.com/sites/default/files/documents/rb-impact_of_economic_downturn-audienceready_0.pdf TL;DR version: with the economy slowing, on a net basis (more 'cumulative' injuries more than compensated by lower 'traumatic' injuries), there will be less claims per hours worked, if history is any guide. The challenge may mean much lower written premiums but Zenith has been there before and they could always send excess capital upstream until they can grow their book of business again. Thanks!

Prem made a comment, either on the q1 call or the AGM call, which made me think he expected to get the money back. Personally I’d have no issue with rolling at a very good strike, but not otherwise.

Some comments from the Eurobank Q1 call: 1) Core PPI won't be affected much, with cost cuts nearly offsetting revenue declines (vs prior guidance). 2) Provisions likely to go from 90bps to 160bps which is manageable (but it is early days). 3) only c.20% of mortgage and corporate clients have taken the offered payment moratoria, and 50% of small businesses. This is lower than they expected, possibly because "these people have been tested under very severe conditions over the last four, five, six years. They remain performing. They have a payment culture that is quite strong." 4) the Cairo NPL reduction transaction has passed all hurdles. The sale of the FPS closes in the next few days and the spinout of the SPV shares will happen in August or Sept. Losses related to this deal will be booked in 2q but it sets them on a much better footing.

I think these are different buckets. Capital allocated to growing sub-insurance will not compete with the portfolio resources being used to buy portion BB or anything else (if this is even true). Prem has been clear that he is not buying back his shares, so there is no conflict there as he is not doing it and in any case if he were, that would compete with resources allocated to grow sub-insurance. You’re right it is different buckets. But Prem is buying back his own stock, slowly. Not until he has paid back the debt he recently raised on the right hand side of his balance sheet, which he said that it will remain at cash/near cash. That was meant to only to fortify the business. He will not use those dollars to buyback shares. He could do that, then he would have contradicted a clear statement he made in Q1. But very slowly to your point. Well, he bought back 140k shares in April IIRC. That’s what, half a percent of the company in one month?

I think these are different buckets. Capital allocated to growing sub-insurance will not compete with the portfolio resources being used to buy portion BB or anything else (if this is even true). Prem has been clear that he is not buying back his shares, so there is no conflict there as he is not doing it and in any case if he were, that would compete with resources allocated to grow sub-insurance. You’re right it is different buckets. But Prem is buying back his own stock, slowly.

I highly doubt it. WTAF is a poison ring? A poison ring is worn on the finger & has a hinged lid with a stash compartment. They were purportedly used to store poison to be surreptitiously dumped into someones food or drink at a gathering. They were also used in the Victorian era & wearers would put perfumed items in them to quell stenches. Here's a modern version. www.ebay.com/itm/203005225978 Nice! Thanks!

I bow to your knowledge. I love Asterix - has been a long time but my in a couple of years my son will be the right age and I can't wait to revisit.

I'm a little sceptical about the dividend income in the short term as several holdings (Recipe) have cancelled dividends. Incidentally, this crisis shows the stupidity of buybacks over dividends in some cases. Recipe bought back a lot of stock in 2019. I am not in the doom and gloom camp on restaurants (I believe they will find ways to adapt) but there are clear structural challenges. In that situation, dividends strike me as a much better idea than buybacks. But that is somewhat irrelevant here. Fairfax is dirt cheap. Many of its holdings are dirt cheap too, so there is a double discount. It has more cyclical exposure than some might like (bearprowler) but if you believe that the world will return to anything like normal in a reasonable space of time (which I do) Fairfax will be a beneficiary.

I highly doubt it. WTAF is a poison ring?

I think an examination of Fairfax's private/control equity investing activities would be a very worth while exercise. Performance in this segment of Fairfax's portfolio has been underwhelming at best. Why is that? To answer this question I think we need to agree on the investments we are talking about. I assembled the following list after a quick review of the recent annual report----feel free to add names that I may have missed: Retail Segment -Golf Town/Sporting Life -Toys R Us Canada -Kitchen Stuff Plus -William Ashley -Praktiker (in Greece) Other Segment -AGT Foods -Peak Performance (Bauer and Easton brands) -Boat Rocker -Rouge Media -Davos Spirits -Farmers Edge Dexterra would have been listed under the Other segment however its recent merger with Horizons Logistics with Fairfax taking back shares of the resulting public company seems to take this one off the table. My thoughts on the list of private investments: -very heavily focus on retail -none large enough to move the needle at the overall Fairfax level -a number of them were decent turnaround/restructuring opportunities however do not make for very good long term cash generating holdings -Praktikar (in Greece)---really---why bother? -a number operate in industries requiring massive scale and investment (e.g., Boat Rocker) which Fairfax cannot provide -Toys R Us Canada -- if the value was in the underlying real estate than steps should have been taken immediately upon completing the acquisition to realize on that valuu. One has to wonder why this was not done? -Some offer good longer term value although the extent of that value is hard to assess: AGT, Farmers Edge Overall I sense the private equity holdings are small, don't really offer much upside, are currently providing a poor return on invested capital, require considerable management time and attention and generally are operating in segments of the economy that have been hit very hard by Covid and will take years to recover. Thoughts/comments of others? I agree. You missed Quantum, the McEwan Group, Blue Ant, Arctic Gateway (partly in AGT). I am sure I have missed some too. Also, minor point but I think Peak Performance is the Bauer/Easton unit and Peak Achievement is the name for the merged Sporting Life and Golf Town. I may be wrong. It looks to me like they’re implementing a pretty clear strategy to improve overall ROI from their private companies and associates. They seem to be picking a leader in a given industry/region, and then seeking to merge like-companies under that leader to better manage/allocate the capital. Look at all the brands under Recipe now, Eurobank’s acquisition of Grivalia, and Seaspan/APR under Sokol. They’re basically using their influence to create mini-holding companies, with specialist managers that can recommend the best use of capital among the brands in their domain. I think the strategy was already starting to work at Recipe. Despite industry headwinds Recipe was shuttering failing locations, sharing best practices with lower performers, and reallocating capital to the winning concepts. I think the whole purpose of this strategy is to get lots of business experiments into the hands of several different, proven, managers, so they can more quickly ramp up the winners while letting the losers dwindle. Theoretically these managers will have their ear closer to the ground in their various industries and be able to make acquisition recommendations, etc. In a way, they’re taking the model they used to allocate capital among insurance subsidiaries, and expanding it to how they will manage private companies and associates going forward. (They did the same thing with investment management teams too.) It might be kind of brilliant. I think this is exactly right.

This is my favourite post for some time.

I think an examination of Fairfax's private/control equity investing activities would be a very worth while exercise. Performance in this segment of Fairfax's portfolio has been underwhelming at best. Why is that? To answer this question I think we need to agree on the investments we are talking about. I assembled the following list after a quick review of the recent annual report----feel free to add names that I may have missed: Retail Segment -Golf Town/Sporting Life -Toys R Us Canada -Kitchen Stuff Plus -William Ashley -Praktiker (in Greece) Other Segment -AGT Foods -Peak Performance (Bauer and Easton brands) -Boat Rocker -Rouge Media -Davos Spirits -Farmers Edge Dexterra would have been listed under the Other segment however its recent merger with Horizons Logistics with Fairfax taking back shares of the resulting public company seems to take this one off the table. My thoughts on the list of private investments: -very heavily focus on retail -none large enough to move the needle at the overall Fairfax level -a number of them were decent turnaround/restructuring opportunities however do not make for very good long term cash generating holdings -Praktikar (in Greece)---really---why bother? -a number operate in industries requiring massive scale and investment (e.g., Boat Rocker) which Fairfax cannot provide -Toys R Us Canada -- if the value was in the underlying real estate than steps should have been taken immediately upon completing the acquisition to realize on that valuu. One has to wonder why this was not done? -Some offer good longer term value although the extent of that value is hard to assess: AGT, Farmers Edge Overall I sense the private equity holdings are small, don't really offer much upside, are currently providing a poor return on invested capital, require considerable management time and attention and generally are operating in segments of the economy that have been hit very hard by Covid and will take years to recover. Thoughts/comments of others? I agree. You missed Quantum, the McEwan Group, Blue Ant, Arctic Gateway (partly in AGT). I am sure I have missed some too. Also, minor point but I think Peak Performance is the Bauer/Easton unit and Peak Achievement is the name for the merged Sporting Life and Golf Town. I may be wrong.

Quite right too. Let them focus on running the company.

We are talking about different things. I agree about the overall record - that's why I'm a shareholder. What I am criticising is their record in non-insurance private/control investing. I think there is a difference in skillset between the various sources of value creation at Fairfax: 1) building and running (and sometimes selling) insurance companies 2) public market bond investing 3) public market equity investing 4) private/control equity investing These are, roughly speaking, presented from best to worst in terms of what I think Fairfax are good at. By the time you get to (4), I don't think there is any evidence that they have created value in any real way, and I think the monetisation effort is an admission of that fact.

I'm constantly confused by this comment about how Fairfax's "private" investments have not done well. Before, the criticisms used to be how their insurance businesses were awful...but since they are all writing below a 100% CR, now everybody says how awful their private investments are. Are they great...no...but if you look at the entirety of Fairfax's private investments (including insurance and non-insurance businesses), they have done perfectly fine over time based on the target they are trying to hit on annualized investment return. Cheers! Lumping insurance and non-insurance together merely obscures what Fairfax is good at, and what they're not. Their record on the insurance side is outstanding. They have done wonderfully in Lombard, First Capital, Gulf, probably Digit, and others. This is why I disagree with SJ on the "shithole countries" investments. Brazil in particular may grow to be another home run. In fact if I have any criticism it's that they don't do more - for example I would think Digit's model could be exported to Africa, Latin America, and the rest of Asia, and Fairfax has the footprint to do this. However, their record on the non-insurance side appears to be dire. There is basically no reporting, so it is hard to tell. But in aggregate the private businesses that are consolidated appear to be lossmaking (IIRC they report ebitda and interest costs and they sum to a negative). Past realisations have shown a couple of wins (Arbor, Ridley), but I don't recall anything that really moved the needle. The only big one (APR) was done at carrying value, which I think had been written down a little. I have (faint) hopes for Quantum, Boat Rocker, Praktiker, and maybe a couple of other little things, but I don't see any evidence of progress overall and there may be some real duds. As far as I can tell Fairfax have conspicuously failed to build a third (insurance, float, private) source of cash flows at a reasonable cost, as Markel and Berkshire have done. I would be delighted by evidence to the contrary, but without it I interpret the monetisation plan as an admission of failure. While I like the admission, the failure needs to be acknowledged.

Is Rivett any good at investing? He’s a lawyer by background. IIRC he was in charge of Fairfax’s private investments and that didn’t go well.

;D Dear lord can you imagine the reaction on this board if Fairfax took Torstar private?! Prem can't admit mistakes! Declining industries! Good money after bad! Liquidity! Leverage! AAAAAAAAAARRRRRRGGGGGHHHHH. Couple of (serious!) points: 1) What makes you believe Torstar did not test the market before agreeing this deal? 2) If there was a better deal to be had, why would Fairfax not have taken it?

None of us does, but plenty of people at Fairfax do. It is quite possible that they simply disagree (which in turn would make agreeing a path forward impossible).

It really isn't that perplexing. At Fairfax, Rivett had a reputation for working extremely hard. People like that don't just stop.

A few things that jump out at me. 1) We do not have the evidence to justify the claim that Rivett has "come out of retirement". A company he jointly controls has made an acquisition. Perhaps he will be heavily involved in the management of this acquisition, or perhaps he will be no more heavily involved than he is at (say) Fairfax, where I believe he remains on more than one board. 2) Fairfax support this deal. This gives rise to two possibilities: a) Fairfax are deeply corrupt and are giving a freebie to a friend, against their own best interests and those of their controlling shareholder, or b) Fairfax (like the broader market) have come to disagree with BP6 on the intrinsic value of Torstar shares (or the likelihood of realising that intrinsic value in a reasonable timeframe) and have decided to move on. I know which I think is more likely. 3) A board which believes Prem cannot admit mistakes, and which has been calling for Prem to crystallise losses and move on, even in stocks which are highly likely to be worth more than their current trading prices, is now horrified that Prem has admitted a mistake/crystallised a loss/moved on at a 67% premium to the current trading price (of the B shares, admittedly).