bearprowler6

I believe its you that needs to "Get your facts straight"! My original post clearly referred to the sale of the UK run off business to CVC which was announced by way of a press release issued on Dec 2/20; which is clearly "well after the pandemic"! The original sale of a 40% interest in Riverstone UK to OMERS (surprise surprise) which was announced on Dec 12/19; closed on March 31/20 (a date also after the start of the pandemic). This sale transaction to OMERS was not the subject of my original post. Bottom line----Fairfax raised new debt at the holdco level and also sold off the remainder of its UK run-off business and a portion of Brit. These steps were needed in order to inject the capital into its insurance subsidiaries and also to maintain the necessary holdco cash level.

And lets not forget that Prem on numerous occasions indicated that the insurance subsidiaries were very well capitalized and waiting for the hard market to show up. Then the hard market shows up and we find out the insurance subs are starving for capital requiring capital injections from parent company Fairfax. The only problem, Fairfax didn't exactly have excess cash to invest into the insurance subs so it had to draw on its line of credit. Then in order to pay down the line of credit (likely due to pressure from the bankers although I don't know this for certain) Fairfax had to sell off its UK run off business to CVC and a portion of Brit to OMERS!

+1 ...well said Xerxes! Sure die hard deep value guys/gals can outsource the decision making to someone like Prem but no one else would or should. It has been discussed on here before, Prem is not a great communicator and Fairfax is in desperate need of a proper functioning Investor Relations department. Taking a play book from BAM....perhaps an annual investor day where Fairfax's 5 year strategy for its insurance and investment operations are clearly outlined and put on the record for everyone to see. Argue all you want with this view but the results (and I mean here the share price) speaks for themselves. Of course those that disagree with this view will reference Berkshire and Buffett. Well first point on this, Prem ain't Buffett. Second point, it is highly unlikely that Buffett would be allowed to operate like that with the investment community if he was starting out today.

I was wondering how long before you waded into the discussion Sanjeev! thanks for not disappointing! What I wrote is not a "fallacy". Bottom line is this....Prem and Fairfax by association are in the penalty box. Rightfully so! The company's stock performance for a better part of 10 years has been atrocious. 10 years! Sitting around and waiting for the market to stumble across all the good happening at Fairfax (e.g., Digit etc) is foolhardy. The market is aware of Digit, the hard market and Blackberry's positioning in the driverless car market. The market is also aware of low interest rates, the disaster that are Farmers Edge and Boat Rocker as well as a board of directors stacked with Prem's friends. A major restructuring is needed starting with a change at the top! Its time for Prem to move on much like Gates and Ballmer did at Microsoft. The long suffering Fairfax shareholders deserve this and will not rewarded by the market until such a catalyst occurs.

It took a change in the CEO at Microsoft (from Ballmer to Nadella) to get the stock price moving! If that's what you are suggesting for Fairfax then I am in full agreement!

glider3834....once again....I don't disagree with your analysis. Sadly however this analysis DOES NOT tell the whole story! The market simply does not care or more likely takes other items into consideration that detract from the otherwise positive picture you have painted. In other words, your analysis is good but (and I mean no disrespect by saying this) it is simply not complete. Furthermore, the items missing from your analysis are more qualitative in nature which I know must be frustrating for someone who does such complete and thorough analysis numerical analysis. I believe that the market does not place any value on the premium growth in these markets because "it" believes that Fairfax should focus on other matters first. For example, share buybacks, buying out the minority interests in Allied World and Brit and buying out/cancelling the numerous classes of expensive preferred shares outstanding. Read what Gregmal is writing. He has it right about Fairfax.

glider3834 and Viking....let me start this post by sincerely thanking you both for your contributions to this board and in particular for your work on trying to figure out Fairfax and where its stock price will go. Believe it or not, I read both of your very thoughtful and numerous high quality posts with great interest each and every time. Now back to Fairfax. I will try to be more succinct in my comments so that my view on Fairfax and the reason behind it are more clear. I do not expect anyone to agree with my view on Fairfax nor care if anyone does or does not. I have my own reasons for posting on Fairfax (I have shared this privately with a few of you). In a nutshell here our my views. Fairfax has been operation for almost 40 years. Prem and his team have built a large international insurance conglomerate they should be proud of. I do not however believe that the current collection of assets (insurance and otherwise) combined with the company's capital structure, current executive management team and board composition will result in the company's share price (which is all I care about) increasing at a reasonable compound rate over the medium and/ or long term. In other words, although the potential is there I do not believe a sustainable long term solid compounding of its share price is possible given the Fairfax that sits in front of us today. Can an investor who follows the company realize a 30%+ rate of return if you buy in on one of the dips and hold for a 12-18 month period. Sure this can happen! I am not talking about this. I am addressing a consistent long term build in the company's share price. Despite the potential and for reasons that are inexplicable at least to me; Fairfax has not and in my view will not be a long term compounder of wealth at any exceptional rate of growth. Why is this? I honestly don't know however several years ago I gave up trying to figure of the "why" and simply came to see Fairfax for what I believe it is. Nothing I have seen since then has changed my view. Do I believe that Mr Market exists and occasionally offers up a short term opportunity on Fairfax and a number of other stocks. For sure however I believe Fairfax is well known and well followed and except for the short term trading opportunity offered up every so often (e.g., in March/April 2020 due to the outbreak of the pandemic) I believe that the market has its valuation about right (give or take $100 per share to the upside). Unless and until Prem changes his ways ; which is not something I would bet on, then I believe that Fairfax at current levels offers up reasonable prospects of a 8-10% gain over the next 6 months or so along with its Jan/22 dividend payment. Not a bad return from these levels! After this I believe the share price will continue bounce around current levels more or less for the foreseeable future. In other words, I do not however believe that Fairfax currently offers a chance at a sustained 12-15% rate of return over the long or medium term from its current share price. My many reasons for this view have been stated on here many times so no need to repeat all my thoughts on this subject again at this time. I believe however that the "market" is simply fed up with all of the issues that continually arise at Fairfax and as a result detract from the valuation that it is willing to place on the shares despite the many very well thought out BV and P/E calculations that members of this board and elsewhere continue to offer up that suggest a much higher share price is on the horizon.

As always Speculatius you make great points! Despite the attempts by all the Fairfax fanboys on here to talk up the stock price the stock remains on a downward trajectory and is trading well below where it was before the pandemic broke out. Apparently it is still well below intrinsic value---whatever that mythical number is for Fairfax? You need to focus on the long term the fanboys will say....I guess 10 years is not long enough? In addition to the points raised by Speculatius--- I would add the following in no particular order: 1) OMERS role to basically offer financing to Fairfax for an extended/permanent period of time (with only the form of collateral changing) at approx 9% shows that Fairfax cannot fund its own growth. The ongoing rate paid to OMERS for this service is ridiculous. 2) The eastern European and South American insurance operations along with those in the middle east and South Africa are too small to be meaningful. They are basically cast offs from AIG and we all know why AIG was selling! 3) Executive transition plan----Prem had basically stepped down from the CEO role when Paul Rivett was appointed President. Prem even stopped appearing on the quarterly conference calls. Well Rivett has been gone almost 2 years and no replacement has been named and the last time I checked Prem is not getting any younger. 4) How will Fairfax unwind the TRS on its own stock. The minute it does it will signal a market top in the stock price which the market will not react well too. Not to mention the exposure that the company faces if Fairfax stock price has a large downward movement. It is ridiculous to place this kind of risk onto the company. 5) As for the stock portfolio---a few winners over the large 12-18 months for sure but who on this board hasn't seen a huge increase in the value of their portfolios over that same period of time? Being honest---nothing really remarkable from the Fairfax team here! 6) I remain unconvinced we will experience higher interest rates anytime soon. Stagflation is more my bet which will not be good for Fairfax. 7) It is ridiculous to suggest that "Mr Market" is unaware of all the great things (e.g., digit) that Fairfax has done recently. The market is aware of Digit, Atlas Corp however when balanced with all the negatives (listed above and elsewhere on this board) the result is the current stock price---stubbornly below so called "intrinsic value" and most notably below the pre-pandemic price despite the huge move up in global stock prices in the last 18 months. So there you have it. I await the onslaught of criticism from those who still believe. The opportunity cost of holding Fairfax over the last 1, 3, 5 and 10 years could make a growing man weep however keep in mind it is not to late to sell out of Fairfax and redeploy the funds elsewhere!

I have a policy not to invest in Chinese based companies so despite the compelling opportunity that BABA appears to offer at the present time; I simply stay away. I put this hard policy into place since I do not trust the business environment in China given the lack of respect for western rule of law. BTW----I have visited China numerous times over the last 15+ years and traveled extensively throughout the country on numerous occasions. My wife is Chinese and we regularly speak with and get updates on the business and political environment from her friends and family (as recently as Saturday night). The comments that I have received from them especially over the last few years have only reinforced the "no China" investment policy that I already had in place. So given the choice you offered to me I would have to select Fairfax over BABA however even just thinking that is nearly killing me.

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