petec

From memory, this statement is significant overstretch compared to what he actually said!

Stelco is the other one that makes sense to me, but might be harder to get AK over the line. Am I right that the Brit stub buyout option expires later this year? That might be the next one to go.

Same here. I seem to recall buying at 8x EV/growing FCF when investors were only focussed on what could go wrong. How things change. I plan to hold for a long time yet - I think it is basically a deep-moat royalty on enterprise IT spend, which has a long way to go - but multiple compression does worry me and I have reduced the position.

Certainly, if they can get back to past FCF levels, the yield on the price paid is attractive. I am inclined to think it can. What would be transformative is if they can find an attractive format for expansion in India.

Correct me if I am wrong, but GIC isn't included when FFH reports the difference between accounting and market value for investments, is it? (And IIRC FFH doesn't do this analysis on a look through basis for FIH, either?)

Ha! It would be quite useful if FFH were able to realise $38 per share!

Cyprus. Cypress is a tree

The latter, I suspect.

I'm not sure that's the right way to think about this. Those are all common stock positions that could be liquidated tomorrow, at which point they'd become the most tangible asset of all. They're also high-quality capital-light businesses that are clearly worth more than BV. FFH's intangibles are mainly the result of having bought insurance businesses. If those businesses were sold today they'd almost certainly sell for more than BV, so BV understates their value. But some of the excess of economic value over TBV is already captured in the goodwill, so the premium over BV wouldn't be as big as it would be for a similar business that had been built organically and had no BV. I think newtovalue is absolutely right that if you are comparing the multiples of FFH, MKL, and BRK you should do so on a TBV basis not a BV basis. I also think Viking is right that it's better to look at earnings. The issue there is that given the nature of their investments, FFH's earnings are less predictable than MKL's or BRK's, so the market will probably give them a lower multiple. Still, I think there is real value in both the earnings power and the optionality in some of the investments and FFH is my biggest position.

Yes he is. My guess is they take this private together at some point a la Atlas.

+1 I think Tope is an outstanding long term partner.

This is a key point! Turns out the wasted years weren't entirely wasted after all. Viking I'd like to add my thanks to the chorus. I've been directionally aware of everything you're discussing for years, but it is incredibly useful to have someone summarise the numbers. Heroic work! Question for the board: how sticky are hard market premiums? In other words, when the soft market comes how much should we expect premiums to contract? Prem says they're sticky - this is a key reason for the focus on growth over buyback at the moment - but I don't really understand why they would be. Obviously this matters when we think about the sustainability of earnings.

Why would they buy long term bonds in a recession? Wouldn't rates be likely to come down in a recession, and money flee to quality? I could see them going long duration before a recession - which would be a pure macro bet of the sort that the board has mood swings about - but not during. What am I missing?

I tend towards Parsad's view that this is cheap, but not dirt cheap. My main worry centres around inflation. Yes, interest income is up because rates are up. But inflation is up more. Holders of fixed income securities are losing money faster than they were before. Fairfax's liabilities, however, are inflation linked. We will have to see how that pans out over time, but I am nervous about assuming that the stock is on 5x sustainable earnings. Still own plenty of it though!

I don't think he has EVER said buybacks were the no1 priority. It has always been 1) financial soundness, 2) premium growth in a hard market, because premiums are sticky, and only 3) buybacks. In addition to that, the pet proceeds had not been received in q3 so it is a little unfair to expect them to have spent them in q3. What they DID do is buy back 0.9% of the shares, making 15% plus the TRS in recent years, AND they bought in 12% of Allied, which is a buyback of sorts although you may not like the value trade there quite so much. Prem is guilty of many things but I think he is executing on his buyback promise. What REALLY stuns me is that premiums are up 60% in 3 years. I thought a hard market was coming, but wow.

Not if the price of gas is higher in enough markets to absorb all possible Russian exports through China - which it is. In that case, Russian gas will never get to Alaska and won't have any impact on the price. Qatar is about the only place less likely to import Russian gas.

Pleasure. I will recant one part though which is the commoditisation of tech where service doesn't matter. Actually, very few companies can afford the kind of automated ordering MacDonald's has. I am not sure the QR code ordering at table actually works - nobody who goes to a full service prefers it to talking to a human, in my experience. So yes, tech is yet another way for the big fast food chains to lower costs vs. their competition.

A net 75c, assuming they pay 50c and given the cost of the pipe/cooling infrastructure and the shipping, is still going to result in a delivered gas price above the cost of developing WCSB gas. China will lose money hand over fist doing this, when they could easily ship that gas to markets that don't have local supply and where they can make significant profits (Japan, Korea, Europe). To put it another way, redirecting Russian gas from Europe to China does not increase global gas supply. It solves China's supply problems while creating supply problems elsewhere. North American gas will flow to those places. I may be wrong, but I suspect even Mr. Trudeau would see that there is no business case for importing gas to North America when (for example) JLK has never spent much time below $10.

I suspect I know less about this than you do, but I would have assumed 1) That the weakening in favourable development over the last few years is due to the lagged effect of the soft market - i.e., during the soft years it got harder to underwrite well so favourable development slowly reduced, and 2) since we are now in a hard market, which all the commentary I have read is largely driven by price not exposure, ceteris paribus one would expect increasingly favourable development in the next few years. Why is this wrong, if we ignore inflation (which I don't think is what'd driving your prediction, but correct me if I am wrong)?

That is not even remotely close to a fair price.

I think it depends on the type of restaurant. If you're looking at places where service/relationship is not important, then tech can reduce labour, although I think this is somewhat commoditised. In places where service (high end) or relationship (your local community restaurant where everyone knows Abdul) then no, I'm not sure there is much scope for tech to reduce labour unless it is in the kitchen. The area where chains have a MASSIVE advantage is in developing loyalty apps. They have a way to gather data, learn, and drive demand via personalised offers that single restaurants or smaller chains never will. Apps also allow them to get around the aggregators which is another big advantage.

FWIW, I think this is the wrong way to look at things. What matters is total resources available, not where the resources are. The subsidiaries have significant dividend capacity - and that capacity would grow rapidly if they decided not to grow premiums written. In extremis, a subsidiary can even be sold. So, if the holdco needs cash it can have it. But that would be a choice, and the cost would be growing slower or investing less. It took me a while to grasp this, but I think the structure here is smart and an advantage. Same for Brookfield, where I ended up thinking the way the leverage was designed in BPY was an active advantage, not a weakness. I have come to actively seek businesses that are levered in such a way that the leverage cannot impair the franchise in a short term crisis.

I certainly think they've thought hard about what they do and are arguably a bit better at it. But I think there's a danger in assuming that that is what has led to better outcomes so far. The biggest driver of improved performance by far has been the uplift in all commodity prices (from interest rates to shipping rates to gas and steel and timber). For example Eurobank was always a good franchise run by a good (perhaps great) team. It's probably a better company than Keells and certainly a simpler one. But the only reason it was so cheap is that it was in the wrong country. I think we should expect Fairfax to continue to make investments like that that take years - even decades - to pay off. Similarly Digit is no different, conceptually, to ICICI Lombard. Seaspan and Stelco are different to Resolute. They're better run and better capitalised. That's great but a) there's been a lot of luck in the timing of the cycle turn and b) don't forget that the only reason Seaspan is better capitalised is that it issued an absolute boat-load (pun intended) of stock after Fairfax invested. Recipe is the same company it always was, just at a lower price. I'd be a lot more confident in your thesis if Fairfax was actively selling failed historic investments, like Blackberry and Farmer's Edge. But as far as I can recall, despite all the talk of "monetisation", they have only sold one: Resolute. None of this is a criticism. I have held Fairfax since 2008, in part because they swim where others see only sharks. Sometimes they get bitten. I am fine with that. Today, it's my biggest holding, because I think they are going the right way and very cheap. I am just cautioning against reading too much into what is primarily a cyclical turn. I believe they are more focussed on investing, having taken their eye off the ball. I think they are better at doing what they have always done. But I do not believe the leopard has changed its spots.

No, but higher prices, surely? No way. Just the shipping across the Pacific would be similar to cash drilling costs in Alberta, and that’s before drilling in Russia, piping to China, cooling, regasifying, and piping to Alberta. What am I missing?

Inflation is the only thing that drives currency diversion over the long term. So the only factors that might cause divergence are a) mismeasurement of inflation or b) cyclicality. What I mean by the latter is that currencies can diverge from their “correct” inflation adjusted value for long periods of time depending on economic performance, perceived risk, etc. These divergences can last decades. Looking at where a currency sits relative to its long term inflation adjusted average is a good way of assessing whether it is cheap.