steph

....and 15 times earnings. FFh could double and still be cheaper than WRB.

What if you manage a fund?

I used to agree with this, but much less nowadays. Reason being that with BRK you also pay 1,4 times the value of Apple and other huge listed portfolio + huge cash pile. You don’t pay the real value of the unlisted companies, but you pay a big premium on cash and listed portfolio that has become a very big part of BRK.

Thx Haryana!

Somebody on the board knows if there are any other interesting meetings/presentations the day(s) before the annual meeting? Thx

@Vikingthe only thing that will certainly happen in the coming years, but we don't know when, is a high catastrophe year with very bad combined ratios. Business as usual, but it will impact your 25% compound.

Not so sure that FFH book value is more inflated than competitors. At Markel the difference between book and tangible book is also quite big. And with Berkshire you have a lot of hidden value, many companies that are worth much more than what book says, but on the other hand you have today, more than ever, 200 billion in Apple, 150 billion in cash plus all other equity holdings for which you pay 1.35 times book.

You don't only pay a higher P/B multiple because of high expeced return on book. You pay a higher multiple because of the notion of quality. Quality company, quality management,... . Fairfax got a low P/B because of distrust towards management and the idea that FFH was lower quality. With what they have just done I sincerely do believe that the market will reward them again with a P/B more in line with quality competitors. 1.3 to 1.5 times would be reasonable. So if after 2026 rates are lower and ROE will be somewhat lower I am convinced the P/B could be higher as long as they continue doing sensible things.

Very interesting discussion. Thx! Whatever the outcome in 5 or 10 years, Fairfax is today a quite unique risk/return investment. Investing is about probabilities. With Fairfax today you have a bond portfolio consisting of mostly AAA paper and some other quite secure income that will give you 10% for at least the next 3 to 4 years and probably longer. You can buy this at book and all the rest is optionality : good combined ratios/Eurobank/Digit/buying back minorities/ even higher interest rates/ good reinvestments of all this cash coming in/ rerating to a higher price to book….and many more possible surprises. In my eyes, for the next 5 years a certain 10%, a high probability 15% and why not even a good chance of even higher returns (if the market falls in love again with Prem ).

I have been a shareholder for 18 years and have made it a very large position two years ago because the risk/return compared to other opportunities was just unique. A bit like Berkshire at one point around book value when the overall market was expensive. I have always been amazed by Brian Bradstreet and I am surprised he is not better known. He is a true legend. I suppose Bill Gross had a good track record in bond investing, but nobody comes even close to Brian’s track record. And in the end, fixed income is the most important part of the portfolio of any insurance company. Even though the stock is up nicely, I still believe Fairfax is one of the best risk/rewards today. Never have they been in the luxury position of having close to 10% of market cap coming in annually, for at least the next three years, from interest on AAA treasuries. Imagine what they will be able to do with that…. My reasoning is the following: Book at +/- 900 at the end of this year. You add 100 every year, for the next three years. End of 2026 book is at 1200. By then people will finally realize that FFH is worth at least the same multiple as most other insurance companies. Let’s take 1,25 times book (still reasonable). Target stock at 1500 in three years. Return of more or less 20% annually. In the meantime we will probably have to go through bad news regarding Blackberry (which will make a lot of noise). There will certainly be one bad insurance year. But I am convinced that there will also be some very nice surprises that will more than make up. So adding 100 a year to book value is very reasonable in my opinion and 20% a year a high probability outcome.

My reasoning is quite simple. Market Cap is 21 billion. Total portfolio is 55 billion (equity and float). If float is for free (combined ratio = 100) and they average 6% on the portfolio for the coming years…that is 3,3 billion before interest expense on debt and corporate costs. But let’s assume we roughly arrive at 12-14% return on actual market cap. If you then assume a combined of 98 for the coming years instead of 100, you can add a 2-3% return a year. So from here (with the higher interest rates) I expect they will ‘easily’ achieve the 15% return on book. Therefore at book I estimate it is much too cheap. 1,3 to 1,5 times book would be a very decent price. Margin of safety when buying today is very interesting.

I also do agree that expecting 94 combined ratios long term is not realistic. 97-98 would be nice. On the other hand I hope to see some nice surprises on the equity side in the coming years: Digit, Eurobank, Atlas,....whatever....and not much credit is given to this possibility. In the meantime FFH still trades at what is a historical very low valuation compared to book even though it has never been as solid: great insurance activities (used to be very average) and a AAA bond portfolio. A 1.5 times book seems acceptable today. This would be more in line valuation compared to the past and compared to competitors. And FFH is today better, stronger and more interesting growth profile than ever before.

thank you Viking for sharing all your work with us. Much appreciated.

I am not sure we have to see this as a +5 billion loss. If they couldn't take the hedges and shorts they would have sold their entire equity positions because they were so bearish at the time. In my eyes the real loss is the difference between the performance of their equity positions and the shorts & hedges. And as such one could argue that it is the huge underperformance of their equities relative to the market that cost a lot of money. I take the opportunity to thank you Viking for all the amazing work you to here.

Hi Parsad, Atlas is a container shipping leasing company. Just like Aercap is for aerplanes. They will (normally) always lease for a number of years. ZIM is a container shipping company, with long contracts and spot contracts with their clients. ZIM is I believe the biggest client of Atlas. ZIM is known to be a very aggressive and not so high quality player in the industry. Luckily they made a lot of money recently. But the risk is that if the downmarket is long they will have a hard time paying Atlas.

I have been a shareholder for 18 years and bought a lot more when Prem went ‘all in’. On two metrics they have done a wonderful job: insurance side and the fixed income side. Dan Bradstreet is just the best there is. What he has achieved over the last 30 years must be the best track record in fixed income ever. My target is 1000$ end of 2024. So I am bullish. BUT there is one last hurdle that will hurt sentiment on this one and that is Blackberry. I don’t know the company but it seems to go to 0$ (when looking at financials). In my head I subtract this from book value. There are other positive surprises that will make up for this, but it will get a lot of buzz if and when this will happen.

Dear Viking, I just would like to thank you for all the work you do and for sharing it with us. Very much appreciated!

no...it's 10% of market cap...but closer to add 7% to book

It seems this is just a tiny peace of written premiums. Should boost book value by close to 10%.

Do you know at what price this was in the books?

My belief is that when there is this rare opportunity of being able to buy an outstanding risk/reward investment that you know well, you have to go big and then let it run and don’t look at it too closely anymore. Big returns are made if you let this high conviction do its job. I have been a shareholder of FFH for more than 15 years but went in ‘big’ (20% of portfolio) around 400 USD. I believe correct price is around 750-800 USD TODAY…this will be growing. With still many optionalities to the upside and low downside risk. …and just imagine what could happen if one day investor sentiment gets positive again about Prem and the Fairfax team? Unless there is really bad news I will not sell probably before we reach 1000 USD in 3-4 years I hope.

Earnings are quite volatile and not always very useful for a company such as FFH. What I like is that they sell Odyssey at 2 times book and buy back FFH at 0,8 times book (Digit and others at actual price).

Not bad. They sold 10% of Odyssey for 900 million and with almost the same amount they buy back 7% of the entire group.

very useful! Thank you.