Parsad

When you get this much pessimism around Fairfax, then you are approaching the bottom. Unlike most, I expect more of a V-shaped recovery from the pandemic. Yes, the lingering effects will go on for a couple of years, but the amount of capital injected, the strength of the financial system heading into this crisis, and the pent-up frustration and demand from consumers will bode well towards the end of the year and into next year. Most of Fairfax's losses were unrealized investment losses, part of which would have already recovered in April. They did not incur significant impairment, and I can't see how their retail and restaurant businesses would have been hit any harder than Berkshire's or comparable companies. Their insurance businesses are going to enjoy a hard market across the board, and they were already writing at a 96% combined ratio. Brian bought a ton of corporate bonds paying over 4% while U.S. short-term rates are at zero. They did not have to tap into the revolver...as Buffett said, there was a moment in March when liquidity was about to completely dry up...Fairfax like everyone else saw that happening and tapped the revolver to make sure it couldn't be pulled on them. Then they went and raised $650M to make sure they had enough liquidity to get them through another 2008! But the Fed acted quickly this time...they had a game plan they could already use and liquidity returned to the markets immediately. You think Fairfax just stood still after doing all that? I guarantee you that they are doing everything to make sure that if you get an LA earthquake or a massive Gulf storm, they will still be walking around to take advantage of that market. I would imagine they are doing whatever they can to make sure that Fairfax's financials are improving in case the pandemic gets worse. I've been through 1999/2000 with Fairfax, been though 2003-2005 when the hedge funds cratered the stock to $56 US, through 2008-2009 when liquidity ACTUALLY dried up around the world and now this global pandemic. I have not held Fairfax consistently through that entire period, but took advantage of the irrationality of investors each time...swing batter batter...swing! Cheers!

I would just say "I'm a consultant and I take on different contracts and positions from time to time." Get some business cards made up. You would be telling the truth, without disclosing your financial position. If anyone asks have you gotten a contract now...just respond "Just finished one, but I have a few coals in the fire. I might take a break until the Fall." Cheers!

Chanos has done a great job with his main fund. And to the biases on this particular forum, if history had broken slightly differently he would have nailed Fairfax as well. He's been short almost all of the major frauds and even the ones he's been burned on, he's been mostly right in the long run (i.e. AOL). I see no reason not to have total respect and pay total attention when he speaks on specific companies. You're free to disagree but he's usually got a point. I recall Ackman being 100% certain Chanos was dead wrong on Valeant - and Ackman was the one caught dead wrong. Happens to all of us - but it was a good reminder that Chanos' work is usually pretty solid - Ackman works pretty hard and still missed it. Value investors specifically need to pay attention to Chanos because as a group we've missed a lot over the years and he's caught many of them. I've been paying attention to Chanos. I love the guy. I think he's one of the few short managers that has actually generated alpha from his shorts. Anyways, what's the deal with Fairfax? I haven't kept up with FFH for almost a decade now. As an aside, if I hear about a Chanos short, and it's a company I'm interested in, I don't take that trade. It's always good to hear about some short thesis from a well known short. They do way more DD than I ever would on a company. I'm probably the only one on this board who has ever actually talked to Chanos. He's smart, but his ego gets the better of him, as it did with Fairfax 15 years ago. I asked him point blank if he had done the research on Fairfax and why he was short. He said, no...he was relying on information from two analysts...and we know who they are for those that were around then. I asked him if he had ever read a Fairfax annual report or quarterly report, he said "no". He's made a huge reputation out of a couple of significant shorts, and he's made a bundle offering that service to institutions and investors. I didn't like the guy then, and I'm certainly no fan today. Cheers!

It's not that. A wholly owned business is consolidated into the balance sheet and financials, and carried at cost, so it would have little impact on statutory surplus in a market downturn. But if he put $50B into equities, and the price fluctuated dramatically as it did in the 1st Quarter, it has an impact on how much business they can write due to mark to market accounting. The cash is there and not being invested because they would not be able to take advantage of a hard market if LA got hit with an earthquake or you see a massive hurricane in the Gulf Coast. Cheers!

It seems to have taken Chou an extremely long time to learn that you can't just buy cheap stocks without understanding the quality of what you are buying. With all due respect to Francis and Mohnish....no one needs to pay either of them for their investment management "skill" in order to own Apple or Google. I personally do not believe either of them suddenly found this "new" approach to value investing. Francis staunchly defended his former approach to value investing for more than 10 years and now he pivots and buys Apply and Google? Call me skeptical....at best. I wonder how his long suffering unit holders who bought into his previous approach all those years feel now? Why is it criminal if Pabrai or Chou pivot, but when Buffett did it with Apple, it was applauded. I owned Apple before Buffett, does that make me a better investor than Buffett? I don't own any Apple right now...does that make me worse than Buffett? Managers evolve...your investing style evolves depending on how and what you are allocating capital into. Chou allocates capital into an insurance business now as well, which cannot handle the same volatility his funds can, because the funds aren't leveraged and losses won't affect his ability to invest capital. In an insurance business, it directly affects his ability to write insurance contracts. Cheers! Criminal? your choice of words....certainly not mine. You say the change is due to an evolution....I say its more likely due to a capitulation. BTW....I am not saying the move is a bad thing....long overdue if you ask me..... Sure, "criminal" might be extreme. Some comments by others were harsher than yours...thus why I used it. But if you have a choice of buying Apple at a discount or Hawaiian Airlines at 1/3rd of book for your insurance business...you're probably going to choose Apple, so that any volatility has minimal impact on statutory surplus. Cheers!

How are you getting 15% with portfolio investments returning 2.5%? I understand you are using $255 stock price as your capital base, but are you taking into account interest expenses, corporate expenses, preferred dividends? Even 3.5% pre-tax return does not get me to 15%. Vinod Not portfolio investments. Fairfax has $1500-1600/share in float/equity/debt. A net 2.5% return in those figures is $37.50/share at the low end. On a $260/share price, that's 14.4% annualized. I'm not talking about portfolio returns, just that they need to net only 2.5% on the total of float/equity/debt after expenses. It doesn't seem like that should be a high bar, particularly if insurance (what the equity/debt supports) is performing well. If people don't seem convinced of 2.5% net on those various forms of funding, then who the hell was buying this at $500-$600/share when the various forms so funding were the same, but the bar for acceptable performance far higher? Normal human psychology. The guys buying at $600 were the ones selling at $350-400! We just heard from Prem in the annual letter that Wade Burton has averaged 19.8% annualized since 2008 for Fairfax, and we all know what Brian Bradstreet can do...yet we're worried that they won't be able to achieve 3-4% annualized on the portfolio over the next 10 years! The only concern would be if we see a massive LA earthquake or the worst hurricane in history in the Gulf Coast this year on top of everything going on. I'm betting against those two happening! Cheers!

It seems to have taken Chou an extremely long time to learn that you can't just buy cheap stocks without understanding the quality of what you are buying. With all due respect to Francis and Mohnish....no one needs to pay either of them for their investment management "skill" in order to own Apple or Google. I personally do not believe either of them suddenly found this "new" approach to value investing. Francis staunchly defended his former approach to value investing for more than 10 years and now he pivots and buys Apply and Google? Call me skeptical....at best. I wonder how his long suffering unit holders who bought into his previous approach all those years feel now? Why is it criminal if Pabrai or Chou pivot, but when Buffett did it with Apple, it was applauded. I owned Apple before Buffett, does that make me a better investor than Buffett? I don't own any Apple right now...does that make me worse than Buffett? Managers evolve...your investing style evolves depending on how and what you are allocating capital into. Chou allocates capital into an insurance business now as well, which cannot handle the same volatility his funds can, because the funds aren't leveraged and losses won't affect his ability to invest capital. In an insurance business, it directly affects his ability to write insurance contracts. Cheers!

His comments are accurate, except for the fact that no one, including McCreath, expected a global pandemic to hit. Look Markel lost like $1.4B as well, but their insurance business was at a 110% combined ratio...it's still trading near book. Berkshire is going to get hit too this quarter, and has plenty of operating businesses that were shut down...it's trading just above book. Fairfax never has gotten the same sort of respect or overvaluation, except in 1998 when it was 4 times book. With insurance doing great, a hard market at our backs, an investment portfolio that should rebound and trading at 0.6 times book...I think McCreath is looking at things with a glass half-empty perspective. Fairfax will do very well over the next 5 years. Cheers!

I have to admit it is very cheap at this level, about a 9-10 year low. Will they ever be back at 660ish again (52w high) in the short or mid-term? I have nothing less than the expectation it does within 12-18 months. Irrealistic ? I think it depends on whether we have rounds of the Pandemic hit us as things start to open up. If we have a V-shaped recovery, I can see Fairfax stock and the market in general, back up around where it was. If the Pandemic leads to a more wider recovery over say 2 years, then it might take longer. Regardless, buying Fairfax at 60% of book value historically has never been anything but a good thing! Cheers!

Hi SJ, I don't have answers for all of your questions, but I do have a response for #6: I'm comfortable with them piling into Atlas. I think Atlas will be a wholly-owned Fairfax Company one day like Mid-American became under Berkshire. With Paul Rivett showing signs of moving into semi-retirement and spending more time with family, Prem and the old guard aging, Andy Barnard not being much younger than Prem, I like the idea of Bing Chen and Wade Burton sharing future duties at Fairfax in terms of a succession plan. One handles operations and one handles investments. That may change depending on what happens, what acquisitions are brought in, what leaders emerge, but I think shareholders could be comfortable in that pairing. Cheers! Parsad Hypothetically speaking, why would the Washington family would want to let go of Atlas, if it is a great bet? FFH would be better off in having a controlling position but probably no more as that type of business in not in their circle of competence. Going to mid-American comparison, if a potential intent is the get the whole of Atlas, and if that bet is a function of David Sokol ability to stay and continue the good work, shouldn't Sokol have a Atlas-only stake, like Greg Abdel does with BRK Energy. For the record, I personally believe in Sokol and his work and Atlas. Do you really see Kyle Washington running and overseeing all of the Washington family's holdings? If you live in Vancouver, you know that would be a bad idea! Dennis Washington is like 86! Over time, their stake will shrink to 20% like it did with Mid-American when Berkshire first bought...eventually they will sell out completely or take Fairfax shares to minimize tax and retain interest. Kyle will oversee the family trust like most wealthy families do with someone managing all of the assets. Cheers!

I have never heard anything related to this. I'm just going by what I see...the amount of mutual respect between David Sokol, Bing Chen and Prem, and the fact that Paul has said that he wants to step back. It was pretty clear that Paul and Andy Barnard would have led Fairfax previously if something happened to Prem. Now with Paul stepping back and Andy getting older...I think they've probably put some recent thought into succession. From this year's letter, it seems clear that Wade is being pushed as head of Hamblin-Watsa, and Bing would be a natural choice to take over in terms of operations. The bench is deep enough where it could be possibly someone else, but the fact that David is at Atlas, he understands insurance as well as anyone. To me, after watching Fairfax for 20 years, it seems that if something happened to Prem, David would be a natural choice for Chairman, Wade overseeing Hamblin-Watsa and Bing overseeing operations. Cheers!

Hi SJ, I don't have answers for all of your questions, but I do have a response for #6: I'm comfortable with them piling into Atlas. I think Atlas will be a wholly-owned Fairfax Company one day like Mid-American became under Berkshire. With Paul Rivett showing signs of moving into semi-retirement and spending more time with family, Prem and the old guard aging, Andy Barnard not being much younger than Prem, I like the idea of Bing Chen and Wade Burton sharing future duties at Fairfax in terms of a succession plan. One handles operations and one handles investments. That may change depending on what happens, what acquisitions are brought in, what leaders emerge, but I think shareholders could be comfortable in that pairing. Cheers!

I'd rather not lump one group of society as invaluable while the rest are considered selfish, useless or unnecessary. I would remind critics that many value investors/entrepreneurs allow businesses to survive, thrive and support valuable endeavours that normally might not get financing or support. They also provide funds to non-profit organizations, spend personal hours working with those organizations and donate to hospitals, research, churches and organizations supporting first responders. Yes, the real heroes in this battle are the doctors, nurses, supporting staff, government officials, grocery workers, pharmacists, researchers, first responders, etc...that doesn't make the rest of society useless...including the poor, lowly value investor. Cheers!

They also said premiums wouldn’t grow for a few quarters. I found that a bit contradictory. But overall it was positive. I think he meant that in the short-term we are seeing a contraction, but will see premiums increase as the expansion restarts later on. I think alot of insurers are taking a significant hit presently...can't see how we do not see a hard market when premium pricing renews around November. We were already starting to see dramatic increases in some lines before Covid-19. I know that strata fees on the West Coast had jumped 300-700% and insurers were no longer offering coverage for many or deductibles had jumped 200-300%. I'm also seeing huge increases in D&O Insurance and some other non-casualty lines. Cheers!

Hi Petec, How did you conclude this? They've said numerous times, Sam Mitchell, Prem, Brian, Francis...there is no limitation to how much they can allocate to equities, be it float or equity, but they have to make sure the portfolio is in a position where they aren't risking a huge reduction in statutory surplus or liquidity. I asked and they told me. As I understand it regulation does not explicitly forbid it but as you say, they can't risk the surplus or their liquidity, so to all practical intents and purposes they are limited, and it shows in their behaviour, because IIRC they have never invested substantially more than book value in equities. I must check. They only had about 30% of shareholder equity in equities at the end of 2019...$5.3B versus $17.3B in shareholder equity. Assume book value fell 15% to date...to $14B, but their equity portfolio is off 40% to $3B...now equity investments to shareholder equity is 21%. They invested up to 60-70% of shareholder equity into equities at different times during their history...that means they could double or triple their current equity exposure if they wanted and still stay under historical ratios. I certainly don't think they are going to do that presently, but if stock market prices fell even more dramatically, there is no restriction on how much they could put in equities, and they could certainly go far higher than what they presently have. Cheers!

They can’t buy any more equities. Simplistically, they can invest their equity in equities but their float must be invested in fixed income. So the opportunities are in switching from treasuries to corporates at expanded spreads and buying back stock. They’re doing a little of both but neither will change their prospects much. They entered this sell off fully invested in cyclical value stocks. As a result, there’s not much they can do. Hi Petec, How did you conclude this? They've said numerous times, Sam Mitchell, Prem, Brian, Francis...there is no limitation to how much they can allocate to equities, be it float or equity, but they have to make sure the portfolio is in a position where they aren't risking a huge reduction in statutory surplus or liquidity. Hi Bryggen, While Fairfax was optimistic about equities after Trump won, they are deep value investors and have only felt that the markets provided tremendous opportunity on two occasions in the last 20 years...the collapse of the tech bubble in 2000 and again in 2009 after the financial crisis. Even when markets fell 50% each of those times, they were reluctant to invest all of their capital...so it's going to have to take a bigger drop for them to buy alot more. I think they would rather let Brian do his thing on the bond side right now, then take a ton of risk on equities...I think they will still be highly selective at this point. That may be awfully conservative, but that's they way they operate. Compare that to Charlie Munger who went all in with Daily Journal's excess capital in 2009...today, Daily Journal is the best capitalized media company in the world! While most other print media is scrambling for investors or donors, Daily Journal will probably never have to worry about financing again...or at least for 100 years or so! :D Cheers!

Okay, that's actually a reasonably good collection of news. We already knew that the equity portfolio would be a shit-show, but hopefully that is temporary. But the good news is reassuring; 1) Riverstone closed as planned, which was key for holdco liquidity. 2) FFH drew down the revolver almost fully before the lender could find a reason to screw them by pulling it. Now it's the lender's problem! Say what you want about Prem, but he's nobody's fool. There's some banker out there who probably wishes that he hadn't written that $2B revolver a couple years ago! 3) They have been hitting the corporate debt market hard. This is Bradstreet's expertise, so that is a very good sign. Look for some realized gains in 2021 and 2022 from the corporates being bought over the past month. The money is being made now, but it won't be realized until later. 4) Gross Written is up 12% and CRs are under 100, so that is exactly what most of us were hoping for on the underwriting front. Okay, this is good. We already knew about the equity shit-show, so this is helpful. It would be useful to have FFH make a general statement about the language used in its business continuity insurance contracts and the likelihood that those contracts will trigger indemnities. SJ +1! Premium pricing for insurance is only going to increase over the next 24 months. There were already huge spikes in premium pricing in certain areas, and with portfolio losses across the board, those able to write business are going to do well over the next couple of years. I truly feel that businesses that gain efficiencies now and make it through this period in the top 10-20% of their industry, are going to be the long-term players in the future who will benefit from today's tightening. Cheers!

Watermelon Webworks is our website manager...nothing from our end...might be some sort of issue they were having with their server. From July, the site will be slowly redesigned and redeveloped. I don't expect it to be offline at all, but there might be intermittent issues. It will be quite different once it relaunches officially on January 1st, 2021! You guys will love it, with the same message board atmosphere, but a ton of other offerings and activities. It will be much more informative, interactive and look very updated and modern. Cheers! Thank you, Sanjeev. Will it have HTML5 functionality? Yes. It will have all of the functionality of the newest websites. So yes, Simple Machines was free and got us here, but it will not be used going forward. Cheers!

Yes, politics will be gone soon. Probably just before we have the run-up to the election! Cheers!

Watermelon Webworks is our website manager...nothing from our end...might be some sort of issue they were having with their server. From July, the site will be slowly redesigned and redeveloped. I don't expect it to be offline at all, but there might be intermittent issues. It will be quite different once it relaunches officially on January 1st, 2021! You guys will love it, with the same message board atmosphere, but a ton of other offerings and activities. It will be much more informative, interactive and look very updated and modern. Cheers!

Hi All, Just wondering how people in our community (COBF) are holding up during the crisis. Please be honest in your votes, because if there is a need, I would like us to try and help those that might need some assistance if possible. Do not use your names if you are in need and post on this thread, but if we find that there is a significant need, I will have people contact me privately and try to find help for them. Cheers! Sanjeev

At the same time, if Fairfax had kept their puts and swaps right now, instead of being pressured by the mistake of missing a great bull market, they would have been killing it now and preserving shareholder capital. They're still going to be doing better than most, but they would have destroyed had they simply stuck to their guns and not been pressured by naysayers. Many also thought that Vito Maida's capital preservation strategy was foolhardy and looked stupid for several years. But his clients are going to be very happy compared to the general public, ETF allocators, etc. They are sleeping at night, and they know that while Vito may not get the gaudy numbers in short-term results...he's going to preserve capital and buy when things make sense. Cheers!

To all of the first line personnel (doctors, nurses, administrators, researchers, health workers, cleaning staff, etc) who are dealing with Covid-19, it's patients, treatments, research, etc, and making sure the general public exposure is reduced...thank-you! Especially those of you on this message board who are busy helping others...our deepest thanks! I couldn't help but think of the movie "The Day The Earth Stood Still", when humankind had no choice but to accept peace, while they dealt with an alien threat. Watching how quarantined patients in Italy are singing, and the world is forming a coalition on how to deal with Covid-19...well it took a global contagion to bring the world together. As the world goes through this, I wish you all well! It will be the first time in 15 years that I miss the Fairfax AGM and our annual dinner is now cancelled for the first time. I hope to see many of you this time next year, when this becomes history, and we talk about it like we did about the Financial Crisis or the Tech Wreck. All the best, Sanjeev...Cheers!

Congratulations Paul! We will miss you dearly...although we'll see you at the meetings every year! All the best from everyone here at the COBF! Make sure your successor continues to read the posts! Cheers!

Merry Christmas everyone! Thanks for all of your contributions and your friendship! Cheers!