bearprowler6

Prem has not hit his 15% book value growth target in over a decade so I would not count on that happening going forward on a consistent basis despite all the good things that apparently are on the horizon for the company.

I don't know why Fairfax is not being re-rated by the marketplace. Nor does anyone else. Low interest rates are clearly a factor however other factors I believe are also in play. No need to review the long list of possibilities at this time. As for what has changed between mid-2019 and mid-2021 --- my best guess (and that is all it is) is that the market place has simply got tired of Prem and his approach to the management of Fairfax. I continue to hold a smallish position in Fairfax and hope that it is re-rated much higher however I would not at all be surprised if it is not. As for the low interest rate environment we are in (which we all seem to agree has to some extent played a part on the valuation currently placed on Fairfax by the market), I do not believe we will see a significant upward movement in rates for a very very long time. If this view turns out to be correct than I believe it will also be a very long time before Fairfax is re-rated to the 1.1-1.2 times book value level by the market.

I am pleased that Chou appears to have seen the light regarding Resolute and Exco however it makes me wonder how it took him so long to realize what you hi-lighted from his Q2 letter. Chou has been investing for the better part of 40 years. He has access to the best investing minds in the business and he only now realizes that commodity businesses do not make the best investments. Something does not seem right to me about this scenario. Furthermore, Chou and the team from Hamblyn Watsa and any number of other so called value investors regularly go down to Omaha to learn from Buffett/Munger. Sadly it seems they listen to what Buffett/Munger say but do not hear the message. I honestly believe this is why the market refuses to re-rate Fairfax above book. Collectively the market simply does not believe Prem and his Hamblyn Watsa team has changed. And yes Prem has a big winner in Stelco and potentially in Atlas Corp but unless and until he deals with Blackberry, Resolute and Eurobank the market will not believe he has learned his lesson. In addition, unless and until the generational low in interest rates reverses Fairfax will not be rerated by the market. Sure a few investors on here essentially picked the bottom of the Covid low on Fairfax and have experienced a nice bounce in the share price until now however gains of similar magnitude could have been achieved by investing in any number of other stocks and in fact the return from several of those other stocks would have resulted in greater returns than from Fairfax. I remain skeptical that much if anything has changed at Fairfax despite all of the excellent posts on this board from many of Fairfax's most loyal followers including Viking and Sanjeev to name just a couple.

Very well written SJ! As for a list of Fairfax's biggest loser investments (many have been mentioned already): Still Holding: Blackberry Resolute Forest Products Eurobank Recipe Farmers Edge Boat Rocker (Fairfax had to buy more to get the IPO done at a reduced price) AGT (had to take it private because the market was "unwilling" to see the value) Deflation hedges Fairfax Africa Sold/Closed Out but not forgotten: Torstar Canwest Global Various short bets How could this happen? My best guess: Poor investment analysis, incorrect position sizing, a CEO with massive ego and an unwillingness/inability to admit mistakes! Or maybe....the Hamblyn Watsa guys are just not very good investors???

Farmers Edge hasn't turned out too well for Fairfax up until now. The IPO for Farmers Edge was completed at $17/share in March of this year. Fairfax owned a little more than 25 million shares at the time of the IPO. The shares closed today at $4.42 resulting in a decline in the value of the Farmers Edge shares held by Fairfax of more than $300 million since the time of the IPO.

cwericb....you have hit the nail on the head. Fairfax is run entirely to satisfy the ego of Prem Watsa. Maximizing shareholder return is not the objective. Nothing more needs to be said. Sanjeev will no doubt disagree however the fact remains....Fairfax is trading where it was 7 years ago and well below where it traded on Jan 1/20. Furthermore, the share performance from the pandemic lows in March/April 2020 have been good but nothing spectacular compared to any number of other insurers, financial entities or a myriad of other stocks many of whom are discussed on this site. This lack of performance would be unacceptable in any other publicly traded entity except for the fact that Prem controls the company through his multiple voting shares. In my view, he is sadly taking advantage of a very good and loyal shareholder base.

Nice try however simply eliminating the FairVentures initiative does not prove your earlier statement that Fairfax will only buy distressed investments. Your exact quote was: "You will never see these guys buy anything but distressed investments". I offer as proof for my position a link to the Dataroma portfolio summary as at March 31/21: https://www.dataroma.com/m/holdings.php?m=FFH A significant number of their holdings on that date and most of their new purchases or portfolio adds during the quarter ending March 31st could in no way be classified as "distressed investments". Value investments perhaps but not distressed investments and given their size they were most likely initiated by Burton and/or Chin. In addition, if the FairVentures initiative took Fairfax down a path they no longer wish to follow then the team at Fairfax would be well advised to exit the positions that occurred from that initiative in order to free up capital for investments that Burton/Chin prefer. Failure to do so will result in a less than optimum use of capital as defined by the investment team now in place.

Sanjeev with all due respect it is simply not true that Fairfax only buys distressed investments. I would cite Digit, Boat Rocker and Farmers Edge as three very recent examples which disprove that statement.

bluedevil In my humble view you are quite right to be extremely skeptical whether Prem has learned any lessons over the last 10 years (with the exception to not short). There is some very thoughtful analysis done on Fairfax and of Prem's many stock picks on this site. He continues to have his fans...very loyal fans. I do however wonder whether those who continue to support him are actually looking at the same financial reports that I am? The push back to the concerns that you raised about his seeming over reliance on P/E ratios is that the analysis done is much more in depth. So in other words the fault is with Prem's communication and not the analysis that the Hamblyn Watsa team has done. I am sure there is some truth to this however the in-depth analysis that was apparently done is therefore in my view quite suspect (e.g., initial research on Blackberry and Eurobank are two examples I would bring up here). And lets not even talk about Resolute Forest! Earlier on this thread I attempted to establish a discussion, without success, concerning Fairfax's investment in two recent IPO's --- Farmers Edge and Boat Rocker. The financials for both these entities are horrible and I personally was shocked with how much money that Fairfax had tied up into both of these investments prior to their IPOs. Both have sold off dramatically since their IPOs so Fairfax is left with a large sum of money tied up in these two entities both of whom have questionable prospects going forward. The recent run up in the equity markets including many of Fairfax's own holdings is a positive but has done nothing to prove to me that Prem and his team has learned the lessons they need to learn. The company remains an over indebted global insurance entity that is struggling with low interest rates and an insurance market that is slowing or atr the very least no longer hard. Yes there has been some progress on the equity investing side (the recent announcement about the value of Digit is truly impressive) but in my view it is simply not enough. I have communicated directly with many of Prem's most ardent supporters on this board. I have a great deal of respect for these individuals however I can say that my assessment of Fairfax's prospects going forward differs considerably. I guess that's what makes a market. Stay skeptical! BP6

Great news in many ways! The magnitude of the unrealized gain in such a short period of time (since 2017) is nothing short of amazing. Perhaps more importantly the press release which clearly outlines the value of Fairfax's investment in Digit and potential book value increase adds a level of transparency rarely seen at Fairfax that should be applauded. Although it pains me to say this----well done Prem!

A new acquisition at Fairfax: https://www.newsfilecorp.com/release/88858/Mosaic-to-Be-Acquired-for-5.50-per-Share-in-All-Cash-Transaction

The issue is not whether Fairfax could have anticipated the hot IPO market and the public market price that Vertical Scope (VS) could have achieved. When Fairfax decided to tender its Torstar shares to the Rivett lead NordStar offer it ascribed ZERO value to Torstar's investment in VS. Strange really given that Torstar net investment into VS was $178 million only a few years earlier (see link to article on the investment below). https://www.thestar.com/business/2015/07/29/torstar-buys-stake-in-digital-media-company.html There is simply no way VS was worth ZERO at the time Fairfax tendered its shares in Torstar to the inferior NordStar offer only one year ago! Regardless of Prem's motives here...accepting the offer from NordStar was simply the wrong thing to do and represents yet another example where Prem did not look out for the best interest of the company's shareholders!

Sadly, the Torstar / Vertical Scope saga is just another in a long list of examples where the minority shareholders at Fairfax were disadvantaged! No need to go over all the examples again...any long time shareholder of Fairfax knows them only all too well. As I have stated before, the market has long caught onto Prem and the games he plays and is no longer interested. For any of you who doubt this...just look at Fairfax's share price over the last 8-10 years. It has gone no where and in fact it is even still well below the value on January 1, 2020. Sure the shares have rebounded off the March/20 covid induced low but not any more or any less than a number of other financials and in fact has underperformed several other companies that are discussed else where on this site. There are a number of good things at Fairfax but in my view the bad clearly out ways the good. Good luck to those of you who still believe in Prem and what Fairfax may become. I expect that you will have a very long wait! Paul Rivett got tired of waiting and moved on to greener pastures. I would suggest any existing shareholder would be well served by coming to the same conclusion as Rivett did.

It might be worthwhile to check in on how the two IPOs (Farmers Edge and Boat Rocker) completed in March are doing: Farmers Edge (IPO completed on March 3/21) IPO priced at $17/share and close yesterday at $9.69/share. Approx decrease in value of Fairfax's investment is $180 million since the IPO. Boat Rocker (IPO completed on March 24/21) IPO priced at $9/share and closed yesterday at $7/share. Approx decrease in value of Fairfax's investment is $50 million since the IPO. Prem and the entire team team are to be applauded for taking advantage of the hot IPO market in bringing these two companies to the public markets. Nonetheless I fear that Fairfax is now stuck with another two public market holdings that will be at best dead money for years with no chance of returning cash to Fairfax or their other shareholders in any reasonable period of time because if history is any guide Fairfax will feel compelled to continue to hold and support these entities over the "long run" and we all know what that means.

Boat Rocker IPO details have been finalized. Fairfax will own 45% of BR after the IPO and had to subscribe for $30 million of the IPO to get it done. https://www.newswire.ca/news-releases/boat-rocker-media-files-final-prospectus-and-announces-pricing-of-initial-public-offering-898386001.html

No, I think that time for Fairfax was back in 2003. The decision that we are no longer going to buy crappy insurers and turn them around led to the group of quality insurers they have today. The second part of that was making Andy Barnard in charge of all of the insurers. Even with Fairfax's more eclectic style of investing, the real culprit behind their underperformance has been due to betting against and shorting the market after 2009. They took advantage of the 50% correction, but started hedging and that really hurt their performance. Even with minimal exposure to the stock market, they would have done very well just in their bond investments, conglomerate investments and the equities they did invest in...excluding their shorts and market bets which cost them significantly. Maybe the decision to stop shorting is a step in the right direction...simplifying their portfolio decisions. Cheers! Sanj, please stop describing what FFH did as "hedging." More than 100% of FFH's equity portfolio was "hedged." When your hedge-ratio exceeds your exposure to the underlying (ie, more than 100%) that's called speculation. It was one of the investment decisions where the excessive position sizing reflected poor risk management. SJ +1

LONG TERM Closing Share Prices in Canadian Dollars Dec 31/14: $608.78 Dec 31/15: $656.91 Dec 31/16: $648.50 Dec 31/17: $669.34 Dec 31/18: $600.98 Dec 31/19: $609.74 Dec 31/20: $433.85 Mar 5/21: $517.16 TRADING GAIN FROM LOWS OF 2020 2020 Low Price CAD // March 5/21 Closing Price CAD // % Gain 2020 Low to Mar 5/21 Fairfax Financial: $319.37 // $517.16 // 61.9% Royal Bank of Canada: $72.00 // $$112.57 // 56.3% Manulife Financial: $12.58 // $26.79 // 112.9% Brookfield Asset Management: $31.35 // $52.66 // 68.0% CONCLUSION: My conclusion---Fairfax has been a disaster over the long term and absolutely nothing special from the lows of 2020. Nothing in Prem's latest letter suggests anything will change going forward.

Brief history of the Farmers Edge investment: Dec 31/17: 46.1% owned with a Fair Value (FV) of $ 95 million and a Carrying Value (CV) of $88.1 million (the 46.1% interest acquired for $95 million on March 1/17) Dec 31/18: 49.2% owned with a FV of $66.6 million and a CV of $66.9 million Dec 31/19: 50.4% owned with a FV of $43.8 million and a CV of $41.0 million Sept 30/20: 50.4% owned with a FV of $43.8 million and a CV of $41.0 million Note: All amounts in USD. Are you sure you're capturing all of the investment? The investment is via convertibles and warrants. From memory (I need to check the red herring) Fairfax has convertibles worth $220m. I don't think they were written down to $40m but could be wrong. I'm wondering if your figures represent the value of the convertibility feature plus the warrants (i.e. the equity) but not the debt? Is that possible? I'd love to be wrong. Edit: having checked the 2021 thread where this was discussed in detail, according to the prospectus Fairfax has $273m of convertible debentures ($225m principal plus accrued interest). It also has warrants. Were these written down? If not then I don't think the carrying value of $40m can be right. Edit 2: the final prospectus confirms that the consolidation ratio will be 7:1. This means that Fairfax's cost for most of thwir shares will be $2.40 (the conversion price of the debs) * 7 = $16.8. So Fairfax won't make much of a gain on the debentures at the IPO price. They will record a gain on the warrants but they only have about 2.5m of them after the conversion (so a gain of about $40m). Here's another try... Value of Farmers Edge shares held by Fairfax at IPO: US $340.3 million (25.023 shares x CAD$17 x .80 conversion to USD) Investment into Shares: Sept 30/20: Carrying Value of $41.0 million for 50.4% per Fairfax Q3 2020 financial statements Plus another 9.5% acquired immediately prior to IPO from the following: Conversion of Fairfax Debentures and Accrued Interest: US $219.5 million (from final prospectus CAD $274.4 x .80 conversion to USD) Fairfax purchase of portion of shares held by Osmington prior to IPO: US $19.2 million (from final prospectus CAD $24.0 x .80 conversion to USD) Total Investment by Fairfax into Farmers Edge shares prior to IPO: US $279.7 million ($41.0 +$219.5+19.2) Accounting Gain to be Recognized by Fairfax Upon IPO of Farmers Edge: US $60.6 million ($340.3-$279.7)

Brief history of the Farmers Edge investment: Dec 31/17: 46.1% owned with a Fair Value (FV) of $ 95 million and a Carrying Value (CV) of $88.1 million (the 46.1% interest acquired for $95 million on March 1/17) Dec 31/18: 49.2% owned with a FV of $66.6 million and a CV of $66.9 million Dec 31/19: 50.4% owned with a FV of $43.8 million and a CV of $41.0 million Sept 30/20: 50.4% owned with a FV of $43.8 million and a CV of $41.0 million Note: All amounts in USD.

https://www.theglobeandmail.com/business/article-boat-rocker-media-producer-of-orphan-black-files-for-175-million-ipo/ Post IPO----Fairfax will end up with 44% of a company valued between $175-$205 million. Revenue growth has been impressive however bottom line rivals that of Farmers Edge. I do like however that the funds raised from the IPO will be used to pay off the bank line with remainder being available to fund future growth. From the article: “Boat Rocker has constructed the platform for a next generation entertainment company, not out of bricks and mortar, but imagination, creativity and integrity.” Boat Rocker will use capital from the IPO to fully repay the $91-million owed from a $120-million credit facility from Bank of Montreal. The rest will go toward developing shows and acquiring intellectual property that can be developed for the screen. The company forecasts $700-million in revenue in 2021. COVID-19 affected production on several Boat Rocker shows in 2020. In the nine months ended Sept. 30, it had a net loss of $43.8-million on $171.2-million in revenue. The company was also in breach of a covenant on its BMO credit facility because its earnings were below a target. The company received government assistance in 2020, accessing $13.9-million from the Canada Emergency Wage Subsidy. In 2019, Boat Rocker generated revenue of $244-million and saw a net loss of $19.5-million.

https://privatecapitaljournal.com/fairfax-controlled-boat-rocker-media-files-for-ipo-on-tsx/

As for the quarter....yes the underwriting results were strong which is always welcome however the interest/dividends earned was down from prior periods reflecting the lower yields available overall in the market. This is a concern that has been expressed on here many times. Prem's style of responding simply does not work in today's modern investing world. At best he comes across as evasive and secretive. The guy who went off on him was clearly frustrated and expressed his opinion. I give Prem credit for letting him finish what he was saying. Having said that... I can't say that I disagree with everything the man said. The answers on Blackberry were simply inadequate. Others may disagree but that is my view. I personally was also frustrated by Prem seeming to imply that taking some private investments public was the same as monetizing them. The response concerning Lace/Burton selling vs Fairfax inself sitting still was also maddening. Their sales may pass all the legal scrutiny but it doesn't pass my personal smell test. Furthermore, if Fairfax is truly constrained by insider rules which prevent them from selling even a portion of Blackberry in these circumstances than we really need to understand what the exit strategy is and how it will be executed. On this point all we have is crickets from the maestro at the top on all these points which simply does not fly.

Refused to comment on BB, several questions on it. All shorts closed. Doesn't this seem like a completely unreasonable stance? I haven't heard the call but how can you refuse to comment on something so material to the company?? The worst was that Prem seemed to be playing dumb when one of the questioners asked how it was that Roger Lace and Wade Burton were able to dump their personal BB shares, but FFH was seemingly unable (or unwilling). To a large extent, that furnishes Wade Burton's opinion of the BB valuation. So, we know what Wade likely wanted to do with FFH's BB position, so who made the decision to stand pat? <==rhetorical question! SJ +1

Here's the press release for the full year 2020 results: https://www.fairfax.ca/news/press-releases/press-release-details/2021/Fairfax-Financial-Holdings-Limited-Financial-Results-for-the-Year-Ended-December-31-2020/default.aspx

https://www.fairfax.ca/news/press-releases/press-release-details/2021/Fairfax-Announces-Conference-Call/default.aspx