Txvestor

Admittedly I haven't looked at the returns of their portfolio since 2018 vs the S&P. However looking at their 13F, we see holdings like OXY, BB, Kraft Heinz, Kennedy Wilson, and Molson Coors accounting for 1/2 of their $1.5B equity portfolio. I've followed these for a number of years and they've gone nowhere. If any of you have audited their equity performance I'd be interested to know. It sure didn't feel like they beat any index, but maybe I'm wrong. I don't believe they reported on that in any of their annual reports either.

I'm glad they aren't taking many positions in publicly listed companies, and that the positions they are taking are relatively small. Their style of investing seem to hit on a lot of value traps. They do better with private equity style investments, insurance start ups, of course their bond king is exceptional, and internal investments/stock buybacks. Even over seas, they lost in Africa and did well in India, albeit without many exits yet.

My point in raising those items was to argue that those tailwinds of the last 5yrs don't exist in the same way as they did for the coming 5yrs. Its clear that, compared to its peers it is priced lower. Much of that is a market response to the management 2009-2019 record. A good 70% of that has unwound but there maybe more to come. As to deployment of future cash flows, let's stay curious, Prem has done some phenomenal things ie Stelco, Irish bank, etc but also some bone headed things like equity hedges, BlackBerry etc. Stock buybacks, minority buyouts and internal holdco investments are wonderful, and they do have options there. That said Sleep Country was a real head scratcher for me. Is fairfax undervalued at the current price, yes, by a lot? No is my view. For the record I do like that they are less focussed on macro and more on their businesses and opportunities presenting during market dislocation and trading internal assets based on economic cycles. That's more of their niche area. 2008 CDSs was more of a one off.

Agree fully with these points. However in honor of Munger, let's invert. just to consider the contrarian view. These events/actions were in the past how many are sustainable or relevant to the future? -The FFH-TRS are arguably less value additive now than 3yrs ago as the stock has made a massive move. I think the unwinding has begun. -Selling some cyclical holdings at their peak was definitely wonderful, but I don't see too much more coming. Some like BB don't seem to be going anywhere. -Stock buybacks are now at considerably higher valuations and above BV(compared to well below previously) and for a given amount of capital outlay will shrink the shares outstanding much less. The gap between share price and IV has closed. -Interest rates do seem to have peaked, although the timing of any fall is unclear, certainly longer they stay up the better for Fairfax but it's quite possible and even likely we see a modest decline in rates over the duration beyond which they have extended their bond portfolio. Each 1% change maybe worth $650M in annual earnings to them(either direction). -Their Insurance businesses aren't growing nearly as much and outside of the acquisition of gulf total underwritten didn't very much last year. Its certainly not likely to be a growth engine go forth even as it will likely generate solid underwriting profit. -Upswing in the Greek economy is definitely helping them, but the overall EU economy prognosis doesn't seem particularly rosy. And that's what the Greek economy is tied to mostly. -Modi barely hung on to power last year. Having had to resort to a minority gov t albeit with mostly stable partners. His power has somewhat been checked. He's also 74 and this is likely his last term in gov't. If Congress(who dominated politics pre 2014) returns to power next they won't be anything near as pro business. So to my mind the factors lifting Fairfax from $2100 Can onwards aren't appearing as strong as those that lifted it from $500 Can. to current. They certainly aren't overvalued or anything and seem set to generate a good $200-250 Can. a year or so in annual EPS, and there maybe some rerating yet on the basis of earnings quality compared to the overall market; but I'm not seeing where the growth and additional value creation comes from.

That assumes you know the net worth of the operator. $25M is not chump change to a lot of operators. Yea it's a rounding error to Fairfax, but to someone with execution capability and specialized skills it's an opportunity they probably wouldn't have without the likes of Fairfax at their side. Although there is limited details about this deal, my understanding is that they are leasing time shares/vacation rentals long term, and subletting them short term. I don't think they will be actually owning those assets. Yes the financing rate is high, and that is where the asymmetric risk/reward comes in. as long as Fairfax is not on the hook for those loans(which is what I suspect since anything they back wouldn't be at those rates) then I think the onus is on the operator to make it work. And those margins in that industry can be spectacular. We will know in a few years but it could be a home run.

Anyone know/heard how their $2.1B CRE portfolio they bought with KW at low LTV from Pacwest bank during the crisis around failure of SVB has been performing. It's been about 2yrs of memory serves me right. It was clearly done at an opportunistic time and IDK if it was marked to market and adds to interest income.

I think the plan all along was to get the share count back down to ~20M where it was before the Allied world acquisition which led to them issuing a lot of shares. I vaguely remember Prem saying in on of the Q calls that it was the plan but over time. I guess it took 7-8yrs but here we are if they unwind the TDS with buybacks we would be right about at that level. Of course that would also increase the gap between IV and BV as the shares now trade modestly above BV. looking at those Brit numbers, most of the Fairfax insurance subs are of the quality that they probably deserve to be trading at 2x BV. And many P&C insurers are trading for those levels and more. Vacatia was def a surprise, and the way the deal was structured was even more so. Firstly the owner operator selected with a substantially experienced and strong track record with significant skin in the game was very important. Then the financial hurdle with the higher interest rates means there's some confidence this post covid travel wave will have legs. This of frankly the type of asset light investment where $25M could turn into $400M in a few years if all goes well. Bear in mind with Thomas cook India, Grivalia etc. They're not new to these lines of business.

Yes an interesting one for sure. Seems like a High risk high reward opportunity with an experienced operator with huge skin in the game. Its a business built around selling vacant room capacity in high density tourist locations like Vegas and Orlando. I hope all that debt is non recourse as $25M is virtually meaningless to Fairfax but $850M is more significant. Thats some serious high yield debt.

They generated 5.1% on a 47B bond portfolio. And have a current 3.3yr average duration. They mentioned that that duration will move forward some as yields stay high. So in short what I understood is that higher for longer is incrementally better for Fairfax. There's even a little more room for overall yield to climb. And even falling rates won't drop yields but quite gradually for them.

An interesting observation was that there were $731M of unrealized bond investment losses this year compared to the 491M of gains last year. That's a swing of about $1.2B(to the downside this year). Granted some of that is offset by IFRS accounting, but still a rather enormous fictitious earnings line item as they mostly hold these bonds to maturity. Add to that the $422M of forex losses which are also taken but hardly relevant to their businesses and you're talking an ~$1.6B headwind to EPS. I guess offsetting that to an extent is the one off $112M digit IPO dividend. So when reported EOY earnings went from ~$175 to ~$160, excluding these fluctuations the number could have been well over $200. interesting too that they said their TRS are still good value and are held as an investment and made no mention of unwinding them. But I do think they will over a 2yr time frame.

Yeah I think he wants to take the share count back to what it was prior to the allied world acquisition.

Interesting that the ground up replacement cost of an airport like KIA is like $6.5B. Even if we don't quite get to the Sydney airport valuations, it seems to me that a 12-15B valuation is on the cards within a 5yr time frame. 2.5B valuation at which they bought 10% recently from Siemens sure does seem like a bargain basement price.

Short term predictions are inherently fraught with risk. That said if the markets do turn lower and interest rates drop as you mention in the downside scenario, I think there's actually some upside built into Fairfax's portfolio. Firstly they have gone out about as long dated on the bond portfolio as I've seen them at any time in the last decade plus. I think it's very likely they are locked in to a mean duration of 4+ yrs by now. If rates do crash to say 2.5%, that's a significant unrealized gains to their income report, which they do have to report mark to market. Adding to BV. On the other hand their equity portfolio is pretty small relative to the size of their total investments and skewed to their equity swaps and other conservatively positioned investments. Additionally the Indian market seems resilient and there's ample domestic investor demand and ongoing world leading growth in that economy as well. Their private equity holdings such as Poseidon and others are in fixed rate sales contracts mostly and some in recession resistant industries. Plus they won't need to take immediate write downs. Still generating cash while preserving BV. Insurance subs. operations performance is mostly uncorrelated to the stock market. And their underwriting has been well, pretty damn terrific of late. All this said if the markets tanked 50% as you said, Fairfax would perhaps also be down but by perhaps 25% would be my guess. And with the amount of cash they would continue to generate from the bond portfolio, insurance ops and equity holdings etc. They could make meaningful and opportunistic investments over the ensuing 2-3yrs. Not the least of which is to buy back their own shares if they are trading say anything around $1000US. So whereas that may be short term painful for us, it would accrue to longer term relative value creation. So they are positioned well either way to relatively outperform, arguably moreso in a downside scenario. Thats the key thing to remember I think.

I think he just wanted to get affairs in order and saw a good valuation opportunity and decided to sell. When BRKb shares were approaching $500 and the market cap touched a trillion, and cap gains taxes are the lowest they'll be in the next 20yrs(or within your lifetime) and almost all your sale proceeds are cap gains, if you're a logical individual you'd want to sell atleast a part of your holdings.

Precisely, we can't anchor to past performance and miss the fruit picking days. 2012-2017 were frustrating days see in Q after Q earnings wiped out by what seemed like a gamble. 2017-2021 were even more frustrating as there was some movement in the company but none in the share price then finally the last 2yrs was the catch up, which I still don't think is complete, as the next 4yrs plus the insurance performance/valuations and growth and earnings potential of some of their subs like Digit and Poseidon are not adequately rewarded. In almost any valuation metric FFH.to is cheap compared to peer group. However regarding FIH-U.to When I see someone like Brian Bradstreet pony up a quarter of a million $ to buy shares I think that's speaking to clear undervaluation.