Duke In Shadows

this narrative of Prem supposedly making capital allocation decisions for philanthropic reasons is tired.

Pretty ignorant take

LULU would be much much worse option, for reasons outside of the cool factor but on the cool factor as a member of the Gen Z community I can tell you UA is starting to make a comeback (really has gone down since 2015 period) so seeing a comeback in popularity. LULU on the hand stopped being cool in the 2023-2024 period, it also has way more direct competitors, alo, even on. so while you could argue the whole sector is not a great place to allocate capital (which I would agree with) LULU is a bad example. they very clearly have high conviction and are taking a more activist role, wade Burton has more of an informational advantage than any of us, so just allow them to allocate capital its not sizeable anyways. the brand doesn't need to get back to 2005 level of coolness, much like constellation doesn't need to get back to crazy 2024 trading multiples in order to be a good investment.

Globe article on FFH backed Blue Ant Media Globe and Mail - Blue Ant Media

without a doubt his right hand man was Rick Salsberg. The setup of Ben Watsa as Chair, Peter Clarke as CEO, Wade as Head of HWIC will without a doubt be the three critical people for the future of FFH. I like all three + think they're super sharp which gives me much comfort. Had an excellent conversation with David Sokol this weekend about succession and I share his view that FFH is incredibly well setup for the future, much better than its southern cousin. Buffett almost never left Omaha. Prem spends half the year on his plane. Much different mentality and end result.

first thing every new person looking at FFH should understand. Truly amazing allocation. https://x.com/DukeInShadows/status/2041222481772515794?s=20

you couldn't pay me to hold SPY today.

it's a very anecdotal conversation. I've observed many so called "value investors" or "deep value investors" not understand why things are cheap or have a catalyst for it to change. but there are certainly others who do.

Asset flipping for sure not. a natural buyer existing does not mean the investment was structured around it. perhaps a feature.

two things. this is Soros not Druck: "it's not whether you are right or wrong, but how much money you make when you are right and how much you lose when you are wrong" the part on selling assets is interesting. When you listen to the CEO of Sleep Country Canada around the time Fairfax acquired the company, he explained that they chose Fairfax over several private equity firms partly because of Fairfax’s long-term approach. They were looking for a permanent home, and that played a big role in their decision. The deal flow Prem and company get over the next decade will depend on how they treat their private businesses. If they simply flip companies like Peak or Sleep Country in two years, they won’t have the same reputation as long-term owners.

Erkan has had a controversial recent history in the same way David Sokol did before his Fairfax tenure. Prem is willing to back talented, top notch people who have had a setback or two. Though I will say she left 1.5 yrs before the eventual collapse before the rapid rate hikes and asset-liability mismatch that sunk the bank. she may have also left because she saw things she didn't like. either way its all speculation. The point is she's clearly won Prem over and his judgement of character is as high as anyone's.

DJT trying to take on Lloyd’s of London lolll

Garbage In, Garbage Out Spent a few hours last week fixing the Fairfax Financial Wikipedia page. Here's why I think it actually matters. Wikipedia has become the de facto starting point for how companies are understood online....and increasingly, it's a primary upstream source for LLMs. In my own testing across ~8 AI tools, almost all of them were pulling directly or indirectly, when answering questions about Fairfax. One tool served me financial data that was five years out of date. Straight from Wikipedia. The page was a mess. Outdated financials, wrong subsidiary info, stale legacy content, and factual errors. including confusion with Markel Group. If I knew nothing about the company and relied on an AI summary, I'd walk away more confused than informed. What's worse is that this stuff doesn't stay on Wikipedia. I have found the same incorrect information repackaged on paid research platforms and data services. Traced most of it back to the same source. Yes, you can override it with better prompting or by feeding filings directly in. But most people don't. And they shouldn't have to. I couldn't fix everything, but I focused on correcting what was clearly wrong and adding some interesting/relevant details. https://en.wikipedia.org/wiki/Fairfax_Financial

@Viking do you know what the ownership breakdown is for Poseidon currently. obv it's between 20-50%. Perplexity gives me this but unsure on detail. Just was trying to understand the various entities. somewhat complex.

how do you know?

The argument is flawed because it assumes that being riskier automatically means the stock should trade cheaper. That’s only true if both companies earn the same return on their money. If FFH can grow its book value faster than BRK (as it has), investors will be willing to pay a similar or even higher P/B despite the extra risk.

FFH bought TRU for $300M in 2018, and sold the business along with some of the RE in 2021 for $90M. Based on personal conversations, my understanding is FFH still owns some of the real estate but not all. Hard to know precisely. So I guess 60% loss isn't entirely fair...perhaps 40%? either way not great. below from the 2021 annual. also in the globe today. https://www.theglobeandmail.com/business/article-toys-r-us-locations-closing-unpaid-rent/

I’m aware of the spending power of the boomers. I’m simply saying that a strategy built around squeezing as much as possible out of that cohort over the next decade, and then trying to exit a set of declining businesses, is not good investing. They’ve recently done M&A into younger brands, like Fresh Kitchens, and in many people's view, have managed to damage what made the brand appealing in the first place (which is part of my broader displeasure with the company). Nevertheless, M&A will have to be part of their future strategy as the legacy brands continue to decline. I’m sure the take private was underwritten attractively and will produce a decent ROE. Just clearly better uses of capital than doubling down on a business model facing secular decline. Example is no one wants to be in the toy business today. Fifteen years ago, everyone did, it was considered “recession-proof.” Fairfax made a poor capital allocation decision with Toys “R” Us, saving it, holding it for three years, and ultimately selling it at a 60% loss. I think Recipe has similarly poor prospects.

one correction or nuance here would be on Jurisdiction. saying "North America is a far lower risk jurisdiction" is so broad based it's not accurate. for example operating Nevada is amazing, California is terrible. Mexico (where ORLA has an asset) is today a quite poor jurisdiction with moderate to high risk. While many non-north american jurisdictions such as Western Australia, Queensland or Botswana rank far higher on mining attractiveness indexes.

My hot take is that FFH spending $1.2B on Recipe Unlimited was one of its weaker capital allocation decisions of the past decade. It reminds me of BRK buying Kraft or the Buffalo News....great businesses in their day, but bought after the future had already started to shrink. The problem isn’t management, it is the segment. Middle-of-the-road casual dining is getting hollowed out. Consumers are either moving downmarket for the cheapest & fastest option, or upmarket for something genuinely distinctive. I’m 22, and neither I nor my family nor my friends have been to places like Swiss Chalet or Olive Garden in years. They’re simply not in the default choice set anymore. The category is being carried by the 50-plus demographic, not replenished by younger ones. I went to a Swiss Chalet last week for the first time in a couple of years and roughly three-quarters of the dining room was seniors. The quality was subpar as well. From a capital allocation standpoint, it's a terrible place to anchor permanent capital as casual dining has high labor intensity, large footprints, and limited pricing power, so most reinvestment just slows decline rather than compounds value. The ~$80M FCF (as of '21) may hold up for a while, but durability is very uncertain imo. For Fairfax, this is obv a case of buying something familiar and stable. unless something drastically changes I fear I will be proven right on this overtime however the timeline it takes is hard to tell. the blessing is that this will not have a large impact on FFH's overall portfolio.

that's the beautiful thing. it's what makes a market.....

at the end of the day The Fairfax Way is most helpful/relevant to non current shareholders....if you're on this forum, I would say it's a very modest amount of new information you learn

AI podcasts are TRASH