FFHWatcher

I keep seeing that Fairfax Asia was sold. Was it? I am pretty sure only First Capital was sold which is one of several Fairfax Asia operating subsidiaries (First Capital is one of the best and biggest parts of Fairfax Asia but I am pretty sure Fairfax Asia is staying in tact Pacific, Falcon, Fairfirst, AMAM, - leaving relatively small assets and premiums, but something like 2000 employees?).

Crip, you have been around here forever. Your comment, "This is definitely a falling knife". You haven't held enough losers if you are calling this a falling knife plus the falling knife term is generally reserved for company's that have a realistic expectation to end at $0 (like Home Capital, for example). I get it that it is falling everyday (a little) but it is more like death by a thousand paper cuts then a falling knife. Falling knives are down a lot more and also have a lot more ugliness then FFH, imo. If it rebounds, it will possibly rebound 3-4 x's faster than it has declined.

I suspect the interest rates are the main reason. It's both...the number of shares that will need to be issued for Allied and the fed raising rates slightly. Funny thing is that Fairfax has over $10B cash in the portfolio which is sitting in 75% cash and bonds. It doesn't matter what Fairfax's price does as stocks fall or rates rise...they will be able to buy when everyone else is selling and looking for cash. As PI said, you are essentially buying Fairfax at nominally higher than book value now. Their insurance businesses are now world-class and fully profitable across the board. The number of non-insurance businesses has increased dramatically and by region. Like Berkshire, as they add better and better insurance and non-insurance businesses, intrinsic value will start to increase faster than book value due to GAAP and IFRS. It is already a business that should be valued at 1.5 times book based on the cash flow of the underlying businesses and return on the investments per share. The one area that I think they should remain cautious is their debt load. While still very manageable and staggered well, I hope they remain conscious and vigilant on this front. One of Berkshire's advantages is that they are beholden to none. I really would like Prem and Fairfax to follow that culture and model. Cheers! Would Watsa consider a share buyback? If FFH has >$10B in cash, is looking for opportunity to deploy and it's own stock is trading at a substantial discount to where Parsad says it should be trading at (1.5x BV), does it make sense to do a buyback/set a floor on the stock price? It is important not to confuse the FFH holdco cash with the operating subsidiary cash balances. FFH holdco doesn't have $10B cash. The cash is at the operating insurance subsidiary (ie. C&F, Northbridge, Odyssey Re, etc.) and those funds are part of the insurance reserves. It's not like FFH has that $10B of their reserves (future claims) to buyback their own stock for investment purposes. Holdco usually has about $1B which is what FFH basically considers as their minimum desired amt of Holdco cash set aside for financial emergencies/flexibility. So they basically have minimal liquidity that they want to readily part with unless they continue to lever up. More likely $20M here and $20M there, as they flow excess reserves from operating subs to holdco. In the past, they have said they generally leave excess funds at the operating subs so they can write additional premiums when the time is right (a hard market).

;D It's all good. I wasn't insulted, I was just struck with the irony because I knew when I saw your screen name what it meant. Favourite COFB posts in a while. I can also use that Google Link that shows how to type it into Google.

Yes, there are virtually no barriers to entry but I don't see that as a reason not to enter it :-) I don't mind competing. My experience that the majority of customers who have a cleaner are loyal. I don't like getting customers based on price as they are not loyal and will eventually be an ex-customer. Find the loyal people and keep them. In the business I purchased, over 50% of the customers have been with them for over 5 years. The customers that have been with us for less than 5 years represents the growth. Our retention rate is over 90%/yr. For every 100 customers we have, we lose 10/yr but add 20/yr based on referrals, for a net 10% organic growth. After purchasing it the business, we didn't lose one customer or one cleaner, so it worked out great so far (9 months into it). The key attribute in selecting the business I did buy was that the cleaners all stayed on. Nothing changed. I hired a manager and basically replaced the owners/manager (who didn't clean houses) with a new manager that I hired. Customers didn't really realize (or care) the business ownership changed hands but they were told the old owner is no longer working in the business day-to-day. All they cared about was that their existing cleaner didn't change. Ideally, I buy bolt on additions where I can keep the existing cleaners (similar to what I did almost a year ago) and not buy really small businesses where the owner actually does the cleaning. My dilemma is that I can buy those businesses for so much less money (less than half the price) that the risk MIGHT be worth it. I think I just need to be become an expert at this transition and make it a system that is repeatable over and over and over..... I am starting to see the Airbnb and VRBO opportunity. I am in a tourist type of market in South West Florida where vacation rentals are a huge opportunity. I also just purchased a housecleaning scheduling website that is already built and working where you can select from a Menu for what you want, schedule your cleaning, input the details, address, it prices it out and then the customers pays right there. In the back end of the software, we input our openings for cleanings in our schedule so we don't double book, we then follow up, assign it to one of our cleaners and move fwd from there. I haven't made it live for our customers/prospects yet as I don't know exactly how I want to us it yet (plus we are pretty much 100% booked up right now, so there is no point in getting more business). Commercial cleaning does seem to be about connections but I also find it very price and economically sensitive. The residential business I purchased actually grew a lot in 2008-2010. All the small 'cleaning ladies' ended up returning to their home countries which meant a lot of customers were in the market for a new cleaning lady and decided to hire a company instead of a cleaning lady, to avoid that problem in the future. The business grew at least 40% in 2 years (off a relatively small base). I will check out that Reddit thing. Thanks. I am definitely buying a customer list but the Scheduling Manager in our office has all the communication with the customer. The cleaner has a bit of a relationship but in many cases, customers aren't home when their cleaning is done and the cleaner/customer are not supposed to share their phone numbers with each other. One of our competitors has a 10:1 ratio of cleaners : scheduling manager/customer service rep., and I expect to do the same unless I can use technology to do more of the scheduling/changes which would be great. I did invest in software and use a cloud based/App Based software, invoicing, scheduling, CRM, e-payments, etc. that all our cleaners, scheduling manager and myself use. Any other ideas for structuring a deal or any input on the numbers, taxation, etc.? Thanks for all your input.

In the past year I decided to make a big change. Move away from my home country, get a US Business Visa (E2), buy a business, invest my capital and time, and now I am looking to continue that growth. I have mainly been living off my investment income from selling previous businesses but after almost 10 years, I was getting a bit bored and felt I could get an even better ROR on my capital in a private business. Curious to hear others opinion on what I think has the potential to be a great little business with an opportunity for me to invest my capital at very good rates of return. - Residential Cleaning Business - Mainly Recurring Cleanings - Weekly, Bi-Weekly, Monthly - Cleaners are licensed contractors - 60/40 split, company gets 40%. 40% Gross margin. - 40% Gross Margin with 25% SG&A (Scheduling Mgr/Gen. Mgr (me) market based salary/Rent/mkt/Ins, etc.). 15%+ EBIT (20% with a bit more scale+technology) Attributes that lead me to this type of business - Mainly Recurring revenue with low customer turnover - 40% Gross Margin and 15-20% before tax margin - No Inventory - Virtually no receivables (< 7 days sales) with no bad debts - No Capex - Simple fragmented industry where consolidating is possible and virtually unlimited - no PhD needed Acquisition Opportunities - Now that I have my base company, I want to scale it - My initial acquisition had 10 cleaners. Needed 1 Scheduling Mgr - Employee/10 cleaners - Purchased at 0.65x's sales (just above industry norm due to favourable attributes) - Based on my anticipated (conservative) 15% pre-tax margin on Sales, my original ROR should be 23% (20-25%) - Acquisition candidates - the business is fragmented, lots of individual 'cleaning ladies' or small companies with <5 cleaners who are willing to sell (many just walk away or give away business for $5-10k) but would look at bigger ones too - I have been able to pick up a couple small ones that represent about 10% of our sales (10% immediate growth if we retain all the customers) at an interesting valuation....with downside limited due to purchase formula used - My base formula for a buyout is 50% of the first years sales (if the business does $4,000/mo, I pay them $2,000/mo). - I pay as little as I can upfront (ie. 15-30%) and then after the sales threshold that represents the initial deposit, I start my payments of 50% of the monthly sales to the previous owner. (If the business did $48,000 in the previous 12 months, then the previous owner may expect to receive a max. of $24,000 (50% of sales formula) if all goes perfect in the next 12 months. I pay $5,000 up front and once the sales from that business hit $10,000 (50% of $10,000 is $5,000, so my initial deposit is covered) then I start paying 50% of monthly sales for a total of 12 months from closing, to a max. of 50% of the previous 12 months sales. - I hire a new cleaner/or use existing cleaner, to replace the seller, pay the new cleaner 60% of the cleaning revenue (standard), leaving the company with 40% gross. Of the 40% gross margin cash flow, I give it all to the seller (like an earn out) for the first year and ONLY have to take 10% out of my pocket to top them up (plus the business has the overhead expense but we can generally add on 10% at a time without adding to our overhead). - In the above scenario, where I am buying $4,000/mo of revenue, 60% goes to the new cleaner ($2,400), 40% to the gross margin ($1,600) and I pay the seller $2,000/mo leaving the business with a cash expense of $400/mo (buying at 0.1x's sales) (plus the added overhead which can be close to 0% in some cases but never more than 10%), so my max purchase price using seller's company cash flow is 0.2x's sales. - Annualized, the max the business is paying is $9,600 ($400/mo is 10% above gross margin proceeds + $400/mo (10% in added overhead) purchase price+added admin, based on $48,000 sales) for 1 year to purchase a recurring $7,200 of before tax earnings (based on 15% before tax margin) in perpetuity (base business actually grows without marketing $). - $7,200 of future before tax earnings for a $9,600 investment = 75% ? Question : Why wouldn't I want to use as much capital as I have to purchase 'bolt-on' acquisitions similar to the above and just make it a formula and perfect it going forward? What are others thoughts on this? Any other suggestions on how I might structure the buy-outs? Of course I use non-compete agreements, I just buy the assets not a corp., really looking at the numbers, not the business risks.

Agreed. But obviously, lots of investors were using FFH as a hedge, don't feel the same way about the election and have decided to move their money somewhere else. Historically, once FFH has conviction on something, they have moved quite quickly. Getting into and out of securities. They aren't known to dollar cost average into a security or out of them. So, it will be interesting to see the velocity at which they re-enter unhedged equity investments as well as what key sectors they will target.

He probably meant ADV.to Alderon Iron Ore which Altius owns a lot of.

For practical considerations, you probably should care about my life quite a bit. Realistically I am a huge outlier in a lot of ways, not all of them positive. But I do think there's something to learn from that about how society in general could operate more efficiently, and certainly there's something in my life that you could apply on a personal level to do so. Ding Ding. That seems to sum it up well. #1/ I am like Cramer, I want to make money. If Scott provides me with 1-2 ideas that warrant investigation, then I am happy. #2/ More importantly, if I can try to interpret and process the same information in a different way, then I think there is a potential benefit to that. Thinking differently seems like a good idea to me and from the sounds of it, Scott thinks differently. Is he Elon Musk...probably not :-) But I like to hear from Outliers.

Looks like someone sold 50,000 shares at the close. It was $660 at 3:58pm. 2 minutes later at 4pm, it looks like someone sold 50,000 @ $641 (almost $20. under the previous trade). Someone needed the money tonight!! $32M trade. Not chump change. Probably one of the top 5 trades in the past 6 months. Most days are avg is about 24k shares.

As I understood it, on the conference call, Prem was asked a question about closing out the shorts. Some new shorts were added that were specific to purchasing Brit and integrating their investment portfolio. Selling stocks takes time, so to protect against any short term moves in the market, FFH hedged Brit's equity portfolio and as they sold off the equities, they closed out the short hedges that were written against those stocks/indexes.

Thanks for the links. It gave me a better understanding. I guess the question I am trying to wrap my head around is 'Should a company be able to use operating cash flow to purchase replacement vehicles that represent maintenance capex?' This company can't afford to buy $55M of replacement capex vehicles so they are entering into operating leases at $7.7M/yr for the current year. If they continue to enter into these operating leases and continue to use up all their cash paying out a high dividend, will the annual new operating lease payments eventually use up all the free cash flow to the point where they will have to cut their dividend? Additional info. 13 year useful life of vehicles. 6 year leases with lease buyouts that are approx. 20-25% of the original vehicle value (reportedly buyouts are significantly below market value) 25% of their fleet is currently under operating leases

I guess this is a bit of an accounting question and a bit of a Operating a Business question. There is a transportation business that pays out about 6% of their revenue as a dividend. Their business operates in a manner that uses long term debt/financing to grow the business (buying more vehicles to service new routes or to buy entire businesses that own vehicles and have contracted routes) but maintains their existing business out of free cash flow (which is the million dollar question...Do they?). Their GAAP earnings are virtually non-existent. Less than 1% of sales. The reason why myself and many others are having problems with determining if indeed they are able to afford their maintenance capex out of free cash flow, is because they have been utilizing lease financing for their vehicles, so while they might lease $1M in new vehicles (hypothetical amt), only a $140,000 annual payment is made (payment is about 14%/yr over 6 years, of cost of the vehicle). The lease obligation is not on the balance sheet. Out of the $1M in new vehicles, 80% are allocated to replace old vehicles, while the other 20% is to buy new vehicles to fulfill new routes that they 'won'. I believe they are basically saying, our depreciation isn't a cash expense, so we are paying a lot of it out as a dividend. $550M revenue GAAP earnings are $3M Dividend is almost $33M/yr Depreciation is about $49M/yr. Net cash provided by operations $49M/yr $202M in LTD If depreciation is 'real' they have no free cash flow because there are no other significant line items. Depreciation always equals "Net cash provided by operations" Actual cash capex is about $35M/yr but on top of that, they purchased almost $46M in new vehicles ($6.4M annual payment) in replacement vehicles (maintenance capex?) for next year. And they are purchasing a growing amt each year. Is maintenance capex $46M or $6.4M? (stated maintenance capex is actually $55M. Stated growth capex is $55M also >> Total is $110M) I estimate they have over $200M in leases that are not on the balance sheet and they are sucking up more and more of the cash. Should they be able to afford to replace old vehicles out of free cash flow, or should they be financing them in some way? This switching to leasing from owning (finance or cash purchase) is confusing re: depreciation. They push through 2% price increases/yr plus 5% growth (winning new contracts). Very stable business. Very visible future contracted revenue. At the end of the 6 year leases, they generally buy out the lease. This past year, they purchased $1M in vehicles from their leases with a reported market value of $3M or so. This suggests the leases do eventually contain some 'equity' value. They can buy it for $10k when it is worth $30k or so. I will cough up the name shortly but as a shareholder, I wouldn't mind keeping it private for a bit. I am sure knowledgeable peeps can figure it out. Is this enough info.? I would love your feedback.

read the post : it is pretty clear. He says Small %. Not going all in. Sounds speculative. Maybe he is thinking... 30-40% downside with 100-200% upside is a good wager, that is my guess what he is thinking. Betting on survivors with solid (relatively speaking) balance sheets. He doesn't have to be bullish on oil or gas prices...just certain that our planet will continue using those resources so he is placing some $$ with companies that can survive a downturn.

As I recall, one of the tough realities with a defined pension plan is that if you choose NOT to commute it and just take the regular pension, once you have been paid the commuted value, the plan owes you nothing. If you have a spouse, your spouse will continue to receive your pension, generally at two-thirds the amount (not including any bridge benefit). So, in reality, let's say you have a $500k commuted value pension at age 54 and your pension is $40k/yr. After 12-13 years of receiving the pension, and you die, then the pension plan owes you nothing. If your spouse is still alive, they would get 2/3's (depending on which option you take, if you have one). In the above scenario, if you commuted it and transferred the value to a LIRA and took the same amount indexed to inflation, you would still have $200k in value after 13 years if you earned 6%/yr. If you are single and dead, that potential value/asset is gone. Another thing that is rarely discussed is the annual limits that you are allowed to take on LIRA's. You can have a huge balance but it is restricted on how much you redeem annually. In my opinion, being single and/or unhealthy heavily favours commuting your pension. Being married, healthy and thinking you will live until you are 90 makes keeping the pension a good idea. Basically, it isn't an easy, straight forward no-brainer decision. If you knew your future rate of return if you manage it yourself, it would be a lot easier.

How do you choose just to put your winners in your TFSA? The dollar amounts are small so I don't over-diversify and I seem to put my losers in there...which leaves me with losses that I can't deduct against my gains. I wonder if the gov't is really foregoing that much lost revenue in taxes from interest and cap gains, if investors have losses in their TFSA?

Great discussion. My thoughts on this topic are my own and are not text book stuff, just real life experiences. - Percentages sound great but I struggled with them and in the last couple years have changed to a multiple of my annual years income (approx.). - If I live a $50,000/yr lifestyle, then I use this, or a multiple of this for my investment decisions. - It sounds easy to say, I have suffered a 25% loss on an investment but if that loss might be permanent or at least could last years because your original investment thesis was wrong or poor timing, then I would suggest picking a multiple of your annual years income and say that you are willing to lose up to that amount. For example, I am willing to lose up to 40% of one years income (ie. $50k x 20-40% = $10-$20k) on a single investment and once I hit that number, I (almost) always sell it. - I also run some scenarios for upside and downside in a normal situation and then invest a multiple of my annual income into any one investment idea. For example, my limit may be one years income in any one investment idea (ie. $50k is my maximum investment) and may start with a 40% position and then I may or may not add more, depending on my conviction level. Moral of my experience : use multiples of your annualized income once you get up to the larger portfolio values. If you have 10x's your annual income invested, then you might have 10 ideas @ 1 years annual income in each or 20 ideas with 0.5 years annual income in each or something similar, depending on level of conviction, etc. Once you get to 20, 30 or 40x's you annual income in an investment portfolio, then I have no advice except to work your butt off not to lose it. Gains from there won't mean much but losing most of it will. - It is very, very tough on me mentally to lose multiples of my annualized income, so picking something similar to a stop loss limit as a dollar amt has worked for me. I have maybe missed some upside but it doesn't compare to the downside losses and anxiety that I have avoided.

I trust that anyone guessing what might be happening behind the scenes and who may be disappointed, confused, WTF'ed, etc., with the OMERS involvement have a lot of billion dollar transactions on their resume? Doesn't it kinda sound ridiculous for a few message board posters (who may have excellent investment results, may be CFA's or equivalent, or whatever) to be 'disappointed' with selling 30% of something FFH just bought? If we were all that smart, knew all the answers, and had awesome plans for billion dollar buyouts, etc., we would be in the C-Suite at some billion dollar hedge fund or running billion dollar corporations ourselves and wouldn't have time to post here. This isn't Prem's, the team at FFH or OMERS first rodeo. Everything happens for a reason and the general public doesn't know all or really any of the facts. Heck, until FFH bought Brit, I am guessing no one here had even heard of Brit and now they are questioning FFH's decision making. 3 months ago Fairfax was $600 and it quickly went to over $700 and no even said a word (hey, it is like $6 going to $7.25...no big deal and now it has fallen back to $6.70....yawn) Geez

Sorry to hijack but not sure about OID. MOI - Manual of Ideas is what I find useful to find ideas, getting an education and familiarity with valuing a company, how to think about a company, etc. http://www.manualofideas.com/

What I have learned with investing and spending $$ : If you find a way to make a good/great return on your savings/capital until you have a reasonable amount of capital, what you spend is mostly irrelevant. I have many successful friends who can be considered very 'cheap', myself included. Almost all of them believe that being cheap and not spending money on stuff they want is why they have so much money. The reality is, all of them made gobs of money being business owners, eventually selling the business getting a good capital base and now they are making a reasonable return on their capital. Whether they spend $100,000/yr or $150,000/yr or $200,000/yr is irrelevant for a person who is worth $10M or more. To answer your question, How does a value investor go about buying an automobile? It doesn't really matter because what we spend is mostly irrelevant (within reason) if we are really good investors and have a good capital base. Minimize your time buying a car and maximize your time educating yourself to become a great value investor.

February 3, 1999 and Fairfax hits $610/share. (Prem is worth about $1B on paper) March 12, 2003 and Fairfax hits $69/share. (Prem is worth $100M on paper) December 3, 2014 and Fairfax hits $610/share. (Prem is again worth about $1B on paper) In 15 years and 10 months FFH goes from $610 to $69 to $610. In 2003 FFH hits $69/share and in 2008, 5 'short' years later FFH hits $79/share....in earnings A few of us have been around for all of it. Here's to hoping we see more earnings of $69+/share vs. a share price of $69/share. Say what you want about Multiple Voting Shares but without them, not sure 2014/2015 would have ever come to fruition. I sometimes think of the gentleman who stood up at the FFH AGM back in the lean years .... ?2005-6? and said he had invested 100% of his family's investments into FFH stock and had 100% confidence in Prem. Prem was almost speechless but as I recall he thanked him for the trust that he was putting in Prem. I would think that would have hit a nerve to Prem as to the degree of responsibility he has (right or wrong) to his investors.

Yes, I have found on the prospectus Equity per share was $10 USD, but I was not sure if the $billion raised is still parked in cash or already invested… in part at least. Though I guess, if they had made an acquisition, they would also have published a press release, right? Why are prospectuses always so incredibly long?!... I will try to read this one anyway! ;) Thank you! :) Gio Why would they issue a press release? They certainly don't at Fairfax, so unless it is required under law, I wouldn't expect that they issue press releases, just quarterly Sedar filings. If they take more than 10% or so, perhaps they might have too. Not sure if that would be governed under Cdn Securities laws are Indian Laws? Cdn Security laws I assume, meaning if they acquire >10% of a particular company, they may have to report it on Sedar.

Wouldn't it be better to look at Brit's excess capital? FFH operating subs have a $25B portfolio but aside from the surplus, that belongs to the policyholders. (from Brit press release) After allowing for these dividends, our excess of capital resources over management entity capital requirements of £251.7m, (which is about $388M US$. Prem always breaks out their holding company investments vs. their operating company portfolio investments. I do not believe FFH is using their float/operating company $25B investment portfolio to buy Brit. That will be financed and paid for from the holdco.

If you are in agreement that FFH can't just raise debt to fund acquisitions, and therefore must use a portion of equity, then he must keep the dividend. I understand that it doesn't initially make sense to pay a dividend and then turn around and issue equity but you have to then go through the scenario of what you are proposing. Scenario #1 a) Issue a dividend ($10.) and watch share price go down and back up by $20 within days of ex-dividend b) Buy a company c) Issue equity at the avg. trading price the week the deal is announced and issue debt to buy the company Scenario #2 a) FFH issue's a press release stating that they will NO LONGER BE PAYING A DIVIDEND b) Watch share price collapse by >$50. c) Buy a company d) Issue equity at a price that is $50. lower than what it would have been had FFH not stopped their dividend (therefore they have to issue 10% more shares), and issue debt as well, to purchase the company. What effect does issuing 10% more shares have on your BVPS calcs? Reality : Once you start a dividend, the unwritten rule is that the only reason to ever reduce or stop it is because you are in financial trouble. Even if you can allocate that capital better than your shareholders, is irrelevant at that point. Even if it will reduce the compounding affect over time, is irrelevant. A dividend does support a share price, to some extent, in most normal scenarios. If Prem ever wants to use FFH equity to finance a purchase, he is wise to keep the dividend. Years ago, after he made the decision to start a dividend, and now he is mostly locked into that decision from here to eternity. Paying out the $10. will pale in comparison to if he stops or reduces it. His hands are tied unless FFH gets into financial hardship again.

Just on yield alone, assuming they pay out 100% and grow <3%/yr, then Pizza Pizza and Boston Pizza are both pretty fairly valued or over-valued. Both yield 5%+. Keg is similar. I haven't reviewed lately but Keg and Boston Pizza should have better dividend growth. Sir Royalty Corp on the other hand is over 8% yield and descent growth prospects with the new openings coming online. I think it is the only Restaurant Royalty that I have left. Pizza Pizza recently seemed to have too low of a yield with little grow opportunity and likely weak Pizza 73 sales number in ALTA. The restaurant royalty corp payouts have been good and steady but they are getting closer to fair value, expect Sir Royalty (Jack Astors, Loose Moose, etc)