Txvestor

Unless the buyer and seller is the same ie TRS unwind at a lower settlement price with a simultaneous contract to block buy the shares held at the said price. That could simply means a lower capital gains tax bill. its more or less at 12mth lows. And they've been buying even at prices 20% higher than this. I too can't imagine who would otherwise sell such a large block of shares. That's almost $700M US.

Well it's quite unlikely they'd be growing much next few years with the soft market. If they grew 3%PA I'd be happy. There's a good chance it stays flat. Hence that won't take up much capital. It boils down to additional acquisitions versus paying a dividend back up to the parent for the share buybacks. Another possibility is they are holding that cash there in the subs, to facilitate the minority buyouts when appropriate and available.

It's why for me personally while the stock stays at these levels. If they used every dollar of cash flows to keep buying back shares I would be a happy camper. I clearly don't know or can't see the upside in what they are doing with these equity acquisitions and although it wouldn't be a mortal blow to the company if they didn't work out, just like Equity hedges and shorts did not, it sure would be at a tremendous opportunity cost. Let's say $3B was allocated here, unless it's worth well over $6B in 5yrs or so time. Buying back almost 10% of the company would have proven to be the best alternative.

Another dog that likely came to life which we will never know about is APR energy. But honestly these are for me in the I can't predict and lucky if I'm at the right place right time bucket.

I have a few of these of my own.

Thats what I was saying about being invested in the model than the stock/equity picking acumen of HWIC. If they manage to do that, it would be icing on the cake. Even a mere 5% annual gain on the equity book get you to double digit equity returns. And we already currently have billions in unrealized gains in the trunk(almost worth around 15% of total equity worth).

An additional factor to consider is they were working with millions and hundreds of millions early on, now it's Billions, I believe around $28B, and size is a headwind. Though certainly not as much of one as for Berkshire. Yet another reason I'm a huge fan of their buybacks.

Not precisely, but anytime you are making an acquisition you can always trade expected returns for risk by adding more leverage. It might not show up immediately, and in Fairfax's position you might even tell yourself, we can always bail out the subsidiary if needed, but ultimately it's risk. Of course if there is business stability for some period of time that risk dwindles and certainly that's a reasonable strategy given Fairfax's position. And yes they've employed that strategy in recent acquisitions. Thats what Fairfax investors need to understand. Between the leverage at different layers in the corporate structure they are taking on risk and you are to some extent betting on the prudence of their risk management.

Well, it's also important to consider where they are currently allocating capital. -KW, is questionable for me based on said company's own shareholder returns last 5, 10 or 15yrs. But we will remain curious. -UA a classic dumpster diving investment down 90% from its peak. -Sleep county remains to be seen. -Andrew Peller which also don't seem particularly cheap or particularly high moat businesses. Whilst I acknowledge they have had a good 5yr run, that was after a long drought and it's by no means certain to me that they have had some sort of eureka moment and this will continue. For that reason, I'm generally a bigger fan of share repurchases than most of the above acquisitions. However only time will tell. Despite all that, I remain invested because of what I said previously, the better mouse trap that they have. And that helps enormously over the long term. I definitely do believe the insurance companies have turned a corner. They are much larger, more diversified across both lines of insurance, and geographically, and have better underwriting standards. Their float is now in excess of $40B and I think interest rates are going to be persistently higher for longer than people are currently expecting just as a function of global sovereign debt levels and inflation risks. Thats powerful with their total investment portfolio 3:1 leveraged. I do generally trust their prudent overall risk management as they have a lot of skin in the game.

Solidly stupid gave us 4% PA, that's a downside I can live with. While I certainly hope they don't repeat, the reason I'm invested with them is because of their valuation and business model. Investment success would be the icing on the cake. The easiest way to not mess up is keep buying back shares while the market gives you this opportunity, and to be fair they are doing that also.

How is APR energy which was rolled into Poseidon accounted for in this ROI calculation?

While I appreciate the positivity. It's important to ask if something truly changed in their investment approach or it was a certain element called luck. The reason I mention this is, a lot of these industries ie steel, shipping, mining and so on are very cyclical. And until they sell and book those gains nothing is a surety. While the early signals are good, that's a point is worth stating. You are right in that they spent a lot of time and effort selling, fixing, restructuring and correcting prior poor capital allocation decisions. Lastly some of the equity investments they are making recently such as KW, Andrew Peller, Sleep country, Underarmour etc. cannot realistically be described as wide moat businesses. Each of us can decide what we think about them, and the most one can hope for is business synergies and better capital efficiency. Again, I like you don't profess to know exactly what their rationale is on these investments, but I think it maybe too early to say they have had some sort of revelation and have had a definitive change. Only time will tell. They are still cigar butt puffers at heart. They wasted a ton of shareholder capital during the lost decade. As we saw in one of your prior posts the difference could have been between 4% PA and double digit returns based on just their business model. Over 8-10yrs that's a more than 100% delta. Now their insurance subs underwriting, sizable float and higher interest rates are giving them a nice stream of capital, and some of their equity investments have turned out well. I think that's as much as I am prepared to say. I appreciate your optimism but wanted to push back a little on this one.

They quite literally have so many capital allocation options right now that lowering the bar makes no sense. Not the least of which is just buying back their own shares. Or clearing out the remaining outstanding ownership interests in their insurance subs. Yet they are borrowing $ to make this investment. So they likely have some plan. Both with this as well as Sleep Country, my concern is retail has never been an easy business. And neither is Food and Beverage. Recipe/Keg for example over the long term has not really generated any sort of impressive returns. As for the real estate angle, even if there was a ROI lift it would be a one time benefit, and not a recurrent scenario. It would be interesting to see how it plays out over the course of time. It's why I said every such decision should be benchmarked against a share buyback.

I don't know about you, but I am not invested in Fairfax because I have some great conviction that they will beat the index. In fact purely based on their equity investments over the last 17 years that I have been observing the company I would have to say my confidence is pretty measured in this regard. 50/50 at best. My reason for being invested is that I believe in the integrity of its leadership and love the way the company is structured. I believe the quality of their Insurance side is now underrated, I like the leverage that a float of that size gives them, I think their bond team is stellar, and I like their international exposure. As long as they don't completely suck on the equity side, we should do reasonably well. As you saw in one of the earlier posts by Viking about the lost decade, they still managed annual returns of 4% despite crappy equity investing and low interest rates. If that's the extent of the downside scenario, sign me up.

A good review of arguably the period I felt most pessimistic ever about Fairfax. All while markets were ripping higher year after year. Perhaps it felt slightly outside of your time window, I don't recollect the exact dates but another peach was Sandridge energy which was built into an almost 60M share 10% position. I believe Prem even brought the since disgraced Tom Ward to one of the AGMs. Soon after he was fired by the board and eventually the company declared bankruptcy in 2016.

The fact that the principals are retaining their stake in the newly formed company, makes it more likely that that is the case. Because if they felt they were getting a great deal, they probably would've cashed out.

Not just that but it's an asymmetric bet. Most one can gain is the stock price, the downside unlimited. Also the adage the market can remain irrational longer than you can remain solvent comes into play. Stocks can stay irrationally priced for a very very long time. Especially in these times of inflated markets, fast moving technologies and central banks debasing currencies and pumping liquidity, it's quite simply a fools errand.

Lol. Or we do, either way, makes more sense.

Perhaps KW can find something good to do with it. I of course don't know anything about the BC real estate market, but it certainly strikes me as a valuable piece of real estate in the right hands. KW has a presence in the Pacific Northwest so might not be too much of a leap.

Yes looks like you're right here. The Andrew Peller release is more clear on this. And I agree it's a good thing as the managers have skin in the game. "Andrew Peller Limited (“Andrew Peller” or the “Company”) (ADW.A / ADW.B) announced today that it has entered into a definitive arrangement agreement (the “Arrangement Agreement”) with a newly-formed and wholly-owned subsidiary (the “Purchaser”) of Fairfax Financial Holdings Limited (“Fairfax”), and Fairfax, as guarantor, in respect of a transaction (the “Transaction”) whereby the Purchaser will acquire all of the issued and outstanding Class A Non-Voting shares (the “Class A Shares”) and Class B Voting shares (the “Class B Shares”) of the Company (other than the Rollover Shares (as defined below))"

Yes thats what I read it to be. And how I arrived at ~$65M. Ie 5.2M x $8 and 2M x $12. Everyone else gets cash.

With all due respect, those are really miniscule numbers given their market cap in the range of $15B. €6.5M is less than 0.05% over 3mths.

https://finance.yahoo.com/markets/stocks/articles/andrew-peller-enters-definitive-agreement-110000838.html So Fairfax is buying a Winemaker Andrew Peller at an enterprise value of about 8x EBITDA. About $65M of Fairfax equity being issued for the controlling stakeholders. I assume the rest is in cash. May have some synergies with Recipe? I sure hope this is a better deal than buying back Fairfax shares. I think at the current prices everything needs to be evaluated from that lens.

I don't know if it's intentional or not, or perhaps related to their bigger size allowing it, but I do see them doing more private equity type investments, a lot more control investments, or atleast having significantly more board representation rather than minority public market positions. An obvious exception to this being their recent position in UnderArmour. The lost decade errors not withstanding, I see them as vastly superior capital allocators than pretty much any of their investee management, who tend to be more operators. So their closer involvement is a good idea in this sphere. AGT foods recent balance sheet restructuring is a good example.

Exactly! On this last point I completely agree. Their corporate and business structure is a thing of beauty. They don't need to do a whole lot more than hit singles on the investment side to compound relentlessly and for a long time. I'm glad you mentioned the likely link between the big win with CDSs and the subsequent upside down macro bets and shorts. I highly doubt the lost decade would have turned out the way it did without that home run in 2008/9. In the aggregate it may even have cost more. Lastly even excluding the Shorts, the deflation swaps and the market hedges. Their investment returns were well behind most benchmarks. They sure had some beauties during that period, everyone and their mother knows about the infamous blackberry, but Sandridge energy, Resolute forest and a couple others that don't immediately come to mind. They lagged the benchmarks significantly to the extent that a colleague of mine said they look more like gamblers than investors. 2019/2020 was truly a turning point. I didn't see them do anything crazy during the Covid market selloff, in fact they doubled down on what they knew best ie TRS on their own shares. And masterfully handled the emerging inflationary environment on the bond side. They kept more to the private equity side as well. I think everyone here sees a relatively viable path to 15-20% annual compounding for the next 5-10yrs if they stay in this lane.