Txvestor
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Posts posted by Txvestor
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Wonder where are all the buybacks. The stock is languishing barely above TBV and I guess we will be hearing more in the next Q but I am not sensing that there is much activity. For all the talk of Singleton etc. Actions are proving increasingly worrisome here.
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Modi reforms considered to favor the billionaire class and hurt the middle class. So some sheen has come off d agenda. In addition as mentioned here progress has been slower than people had hoped. It is correct that Congress and Gandhi unlikely to do anything positive. Most sensible people do realize that. Most likely scenario is a Modi minority gov't.
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John Deere. I can't beleive they have not yet.
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Not sure if you all heard the Shakespeare joke.
Shakespeare's wife was apparently a looker, and Shakespeare of course is a literary genius.
One day frolocking in bed, she said to him, if we were to procreate, just imagine, your brains and my looks, we would have a wonderful child.
Shakespeare looks at her, smiles and says indeed love, but imagine the horror of one with my looks and your brains.
As this was about Munger and he is the "Invert, always Invert guy", I could not resist.
Babies and children don't always turn out as expected, and I think there are too many variables, genetic, environmental, cultural, luck etc. to do much more than try to get a mediocre level of success, if that. The randomness of life is astonishing and complex, and those of us with a number of adult years under our belt, know it too well.
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ICUMD,
Drinking the Modi KoolAid eh? In the end it all delends on the India thesis. If oil spikes as seems likely, and if there is a global slowdown in trade of goods and services, which is also a real possibility, then the Rupee will likely crater.
Mr Modi's policies are centralizing power and control and I just do not see that as a recipe for economic success in a country as vast as India.
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I believe they sold down most of that converted equity stake in 2012 at around $20. They more recently picked up a smaller $60M position in the low $30s area but their irigibal stake was much larger.
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Thought he should have made a run on DE last year when it was trading in the 70s, but obviously he didn't and, i know it was on his radar cuz he had a stake in it, since sold. Felt like it was close to his agricultural roots, had a successful brand, a decent if not wide moat, a sizable financial arm, good management and was at a cyclical low. It has since doubled, but can't see it going anywhere in the next 25-30yrs. The agriculture economy is essential and its products indispensable. Its global foorprint can only grow from its home base.
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Buffett has had a major influence on my thinking in business, investing and private life over the past 30 years. I only learned he was human after having read "Snowball" when it was just released. He will always remain a hero and someone I try to emulate in many ways.
Having said all that, the one thing that surprises me is that, with all the influence and respect he has across the world, he doesn't use this platform to comment on several items which seem obviously concerning including the perpetual, and seemingly unending, annual deficits and borrowing by the US. One word from Buffett on this topic and the attention of the media and politicians would focus. I can just see the headline "Buffett worries about US debt level!". He used to be more vocal about such things in the past (remember WMD?). Lately it seems to be more about preserving a "good guy" legacy.
We need people of influence and wealth, particularly those who have benefited from the system, to step up and be more vocal about such issues including the unsustainable level of borrowing. This is not a political point but one of fiscal discipline. Otherwise, all these big businesses just got a tax break but the government debt increased as a result.
There is no ownership of this problem because the government isn't run like a business and no one has any skin in the game. Politicians don't care. Voters don't mind so long as they are getting a benefit. It seems business don't mind either so long as they are paying less taxes. The government is being milked for all its worth and all that will be left is a debt-ridden carcass eventually. Berkshire would never be run that way because Buffett has a legacy (and shareholders) to protect. When it comes to government, it appears to be no ones legacy since no one person can be identified as having cause the problem.
Sorry, the rant isn't about Buffett per se but about important issues that need people of influence to speak out about. The one dimensionality of it all gets to me.
Agree Cevian. Its crazy that this far into an economic expansion cycle, we have not come close to seeing a balanced budget, and the debt to GDP ratio is rising. We are yet to have most of the baby boomers hit retirement and draw medicare and SS, and we are not even close to discussing entitlement reforms in a serious way.
Mr Buffett has made this choice consciously, but one wonders if it is really the right thing. I wonder if his social liberalism is what is preventing him raising his voice.
In the past he proposed some ideas to curb the trade deficits etc. but has gone stone cold quiet about these topics since the GFC. Ironic since like you said, he has both brainpower, the perch as well as the respect of wide swaths of society in addition to a disarming communication style.
I fear just like the blame everyone scenario with mass stupidity identified as the cause of the GFC, ie Lax lending, stupid borrowing, poor politicking, turn the other way regulating, and self serving corporations was the cause. Ie Multi factorial. Sound familiar?
We will ironically come to the same situation on a much grander acale eventually as numbers are very concrete and the clock is ticking. Its really an unfortunate scenario for someone who manages their affairs prudently, just as it was in 2008/9 for the do it right homeowner, but everyone flushed "moral hazzard" down the toilet like it didn't matter. I guess immoral isn't so when done on a grand scale.
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It hasn't been a buy and forget, because of all the missteps HW has made. Were it not for the equity hedges and deflation swaps, BV would easily have been 50% higer. And the multiple to BV would likely have persisted. If you buy here, you are betting that Prem will not do anything value destructive in the next few years. The market has not ruled put that possibility and I think the market is probably right.
They jury remains out on the AWH purchase alone.
To the poster stating he mentioned 2B and $70 per share, I was on the call as well. When an analyst asked, he was clear that this was not guidance. On that I would just say he has also touted 15% annual gains in BV for many years, and keeps saying over the long term, that hasn't happened in post crisis era either.
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Good post Petec.
If they continue heading in that direction, it will work out but, it will take time for the market to consider this the new state. Buffett has done it for decades now and it does not trade at a large multiple of book value.
And these bonds or cash holdings are not permanent positions like a Precision Castparts or a BNSF. These will be sold or invested elsewhere.
So yes, if they do well and earn money, the stock should follow that rate of progress. However, to call Fairfax a table pounding opportunity at this point because it should pop and simply trade at a much higher multiple of book is wrong IMO.
Actually the market is likely making a favour to these people if they are true investors and not just looking for a quick exit or instant gratification since it allows to repurchase shares at a reasonable price which combined with a potentially profitable future that we just alluded to leads to a higher investment return.
Cardboard
Cardboard, two or three days ago, FFH was trading pretty much bang-on at book value. My heuristic for BV (or at least a BV that is mostly tangible) is that this is the point where the business as a going concern offers zero value. This is the point where, if one could liquidate the assets for a "fair price" and put the business in run-off, you'd be equally well off to do so.
So, I'd say that FFH deserves to trade above book. There's plenty of room to debate about how much above book it ought to trade, but my take is that this thing is not worth more dead than alive.
SJ
Agree with you on this stuble. In addition the recent subsidiary sales transactions demonstrated value above BV as well. I think the market here is discounting recent poor investment performance and extrapolating that into the future. I can't say that is unreasonable. MKL deserves their stock price being above BV. They have invested well, acquired non-dilutively, and outperformed the markets consistently. If Fairfax does that for 5 yr, they will rerate as well. Will that happen? I am not so sure. But the investment thesis here is thet even without hitting it out of the park, they should be able to consistently grow BV 10-12% a year, a feat that has eluded them over recent times. Even that would get them to a higer multiple than 1BV. Prem just has to make sure he doesn't trip over his shoelaces yet again.
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Reading your last post as I was finishing this.
Brit has been into the fold for some time now.
Their own disclosure describes a recognition that, generally, markets have been very soft. This would point to a lower risk appetite and to lower retention of premiums even if it remains relatively well capitalized.
One does not know if this was a directive coming from the sub itself or "guided" by the parent, but Brit has disclosed for instance that it has been increasing cessions on quota shares. It's a question of degree and context but I think counter-cyclical adjustments are welcome even if it means less income in the short term.
Expect more of the same at Allied World?
Interesting observations, and as it happens to coincide with better underwriting results in recent years, one cannot really complain. AWH ceding that much, yet performing so poorly this last Cat season is shocking however. I guess at the very least, it is not as much a gem as it was touted, and Andy Barnard has a lot of work to do whipping their systems and processes into shape.
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The purpose of my previous thread was to (politely) point out that Ben is not immature (age 38) nor without investment experience (see bio).
Expanding on my previous thoughts (not so politely) it is obvious that this board contains not only some naysayers but those who question the integrity of the Watsa family. Consider-Prem’s payday is $600k per year for running a company with a market cap> $18b-ABSURD !
One way or the other Prem’s children will inherit and have to manage over $1b (or more) consisting mostly of Fairfax stock.Shouldn’t they (through Ben)have some idea what’s going on ? It is called skin in the game and being a member of the board is a great place to learn without screwing things up to badly.
I know that Fairfax farms out monies to be managed by many other investment companies not just Ben’s.It is called fresh ideas or different viewpoints.Do you really think that $50m was handed to Ben to manage like Monopoly money? His employer has a lot more on the line than the management fees on $50m (reputation and future business come to mind).
Finally you have two choices Mr. Stubblejumper-1) Suck it up and confront Prem at the annual meeting with a list of your grievances (real or imagined)
2) Sell your stock.( Betting on a horse when you doubt the jockey’s honesty and ability can only end in disaster)
I think that is pretty rude. Thanks for stating the obvious. This is a free discussion here and nothing stubble said is out of bounds. Asking that question is not unreasonable given the recent vote consolidation. Remember even if ~1B is watsa family money, the vast majority of the market cap belongs to other shareholders. The fidjuciary responsibility is to them.
As to the 600k annual salary, that cannot be the defense of every action. Prem is free to take what he deems a market appropriate salary, but then would be judged on those metrics. He chose not to and I can see why given his large ownership stake.
All these questions do arise because for the past 8-9 yrs he has not distinguished himself during arguably the greatest bull market of many of our lifetimes. He was flat out wrong, and BV has suffered tremendously as a result even as he kept touting 15% PA as a longer term objective. Let's be clear, 8-9 yrs is not a short time either. Finally he has wagered pretty big on a market and economic turn upward at an interesting time in the cycle. In addition he has bet large ie over 50% large, on a couple of huge insurance acquisitions, on which the jury is still out. If the latter two things go against us, it would not be clear to me that his position is tenable, despite his fabled past.
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Because it is a hell of lot easier to be negative...join the club!
If the crowd was not negative than the price would be much much higher and we would not even be having any conversation.
Well said and absolutely true. I would be skeptical about anyone stating that they know AWH book
inside out 100%. Its not possible. The Cat losses were higher than at other fairfax insurance subsidiaries and Prem hinted at some modifications to underwriting. The part that concerns me is the
$50M adverse development from a claim(s) they took this Q. That is over and above the Cat losses.
Based on the worse than Fairfax Cat losses and this additional adverse development, if anyome can cleerly categorically why it would be wront to question AWH I would be interested. The jury is out as far as I am concerned. This is a sizable and dilutive acquisition mind you.
I think barring wacky investments by Prem(which he appears intent on tempering) and things going terribly wrong at AWH, the path to $2B a year in BV gains is not terribly difficult to envisage.
At 8% equity gains, an average 3.5-4% bonds return, and 95% CR on 15B in written premiums gets you there. And as Prem pointed out thats $70/share/yr. on that basis in the current market Fairfax should be a stock closer to $1000 than to $500, but to my mind the unknowns stand in the way, which is why it teades where it currently does. The good part is fixing that is within grasp.
I'm not sure that it's a simple question of being negative. The adverse development is definitely a concern. Does it end in Q4 or do we see more in the future? Was it caused by bad luck, or is it a symptom of bad underwriting (under pricing and poor adjustment practices)? Is it something that fixes itself, or can FFH find somebody to go in and fix it?
Those are legitimate questions. Allied might be a decent deal, but the first few quarters are harkening back to the massive reserve adjustments of TIG and C&F. But, this time FFH doesn't have the SwissRe cover, right? The good news is that TIG and C&F were long-tail which is where the worst adverse development tends to appear. But, I'd say the jury is still out (this is true of all acquisitions -- it takes a bit of time to determine whether you bought a lemon or a turd).
SJ
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I agree, and I hope he has come to terms with his wackiness!
I also worry a little about the Underwritig at AWH and hope there are no roaches in that motel we have taken over.
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Is this the same David Sokol of Berkshire Hathaway fame, that was unceremoniously booted out soon after the Lubrizol acquisition for front running his money while aware of Berkshire's plans to takeover?
A little hard to stomach after Watsa's blind faith in Tom Ward that lost Fairfax hundreds of millions of dollars. If you listen to the likes of Walter Schloss one of the attributes of Warren Buffett they are amazed by is his uncanny ability to judge character, and as close as Sokol was to the top, I doubt he was acting with less than full knowledge.
Certainly a concern for me. Any thoughts?
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Merry christmas and happy new year to a wonderful group of young nvestors and benevolent humans. It never ceases to amaze me how many stand out investors are here. Humbled by your company! Thanks Sanjeev and each of you.
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Food for thought. Are we creating the same thing in other sectors of the economy?
When I read X hospital chain buying Y and see the numbers and scale of their
regional and national footprint, and then the utter mismanagement. One wonders
whether in the not too distant future we might see a cousin of “too big to fail” emerge
in the health sector.
The argument goes: “We cannot let these hospitals fail and leave 30M Americans
without access to tertiary healthcare, this is a matter of life and death”.
What’s to prevent that when we have 200+ hospital national chains being formed
and deeply indebted?
That was my biggest disappointment with Pres. Obama, I really don’t think we
effectively dealt with TBTF, and now encouraged it in other vital sectors of the
National economy, witness the huge mega mergers in multiple industries.
Had the big banks been broken up instead of take over others we likely wouldn’t
have seen these mega mergers in other sectors. The solution to TBTF can never
be even bigger!!! The American taxpayer and eventually the US economy and it’s
currency’s position is being imperiled by these actions IMHO.
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Agree, one should always be careful of industries with headwinds threatening their margins and even survival. Whether that be certain brick and mortar retail or other industries, in the face of such upheaval, investing for me automatically goes into the "too hard" pile. I am certain there are a few retailers in the brick and mortar retail pile that are inappropriately being punished as we speak, but I am not sure I am equipped to know or figure that out.
This industry(healthcare) is facing enormous upheaval and scrutiny like never before in decades, their margins are nowhere near to acute care facilities, and patient and family expectations and liability is quite high(as they often transition there from acute care and used to that level of care ad supervision which SNFs are not set up to provide). Staff is not the most motivated(or well paid for that matter).
Hence it is not the best business when further to those issues, payments are pressured. Granted these are REITs, but if their end customer is not healthy their porospects too cannot be.
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Prem plugging India Inc. And its growth potential. Some insights into his thoughts on fairfax india here.
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Sharperdingaan,
Do you have any reason to think specifically about that? Historically reserving at both Fairfax insurance subs. as well as AWH/Brit has been conservative and usually gone the other way. Why are you thinking it might be different this time? And what was the Cat. loss in Ireland you are referring to?
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The risk here is three-fold 1) as Txvestor points out the bulk of this came from the acquisitions, 2) there are more floods, they are bigger, the 'season' is getting later, & there are so many black swans today - that they have almost become the norm, & 3) it's highly likely they have already burned through almost all the cover they thought they would need for the year. We would suggest the current cat/super-cat exposure is simply an unintended consequence of the acquisitions.
If a late hurricane, or even a scandal around the industry's handling of existing hurricane/storm claims, drops the current price by 10%; it's a loss of roughly $C 65. If the intent was to buy & hold for the Jan ex-dividend date, you might benefit by roughly $C 13 (after FX). Hence, if you haven't bought yet - there is an incentive to wait as long as possible in anticipation of another natural disaster.
Nothing to do with the company.
Simply an opportunity.
SD
True but the odds of another major in the rest of the year are rather small. These super cat years come along every decade or so, and in that context a Q is a very tiny part. But yeah another one will certainly be more impactful.
From the outside, there appears to be room for some dispersion of underwriting prowess from legacy units to acquired ones. Andy Barnard has some work to do!
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fairfax book value is $573 cad after q3 and if account for First capital sale ... so would put today’s price of 674$ at about 1.17x book.
seems cheap
but the Underwriting Loss was very significant.
Berkshire was 3b loss
while fairfax is 900m. wow
Yes and around half of that 930m loss was from the most recent two acquisitions.
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By that measure with the amount of easy money floating around, we likely won’t see any hardening of the markets anytime in the near future. I’m not sure that’s the primary correlation.
Let’s see, but taking 100B + out from an industry with a 750B or so capital base generally should be impactful.
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Twocitiescapital,
Perhaps so, but my point was those set of factors would be the same at odysseyre and the other legacy Insurance subsidiaries and the relative underperformance was what was unnerving. I just listened to the conference call recording from earlier this morning and Prem obviously projected confidence and seemed unperturbed. He said Andy Barnard and other senior execs. visited with AWH after the close and were happy with operations.
He did mention a $20m negative reserve development at AWH and without that and Cat losses they would’ve been a CR of 96%.
He mentioned their historically very conservative and redundant reserving. Mentioned Scott Carmelani’s Long track record etc.
To me that was a bit self-contradictory but .....
At any rate, not rushing to judgement here but certainly something to keep an eye on going forward. I mean how many times haven’t we seen an insurance purchase go wrong initially even if it eventually works out. Sometimes one wonders if that’s not an industry way to bring out the dirty laundry! It happened to Prem and Fairfax before and
it happened to no less than one WEB and Berkshire Hathaway right?
On a more positive note, he mentioned his view that he thought the discrepancy between BV and IV was at its largest in its 32yr history. That’s quite a statement considering Fairfax has traded at as much as 2.5-3x BV in the past and generally at a much higher ratio than its current multiple. Perhaps one could argue that it was overvalued then but it’s quite obvious that atleast Prem thinks shares are undervalued. And considering market valuations you would be hard pressed to disagree. My 2c is that if AWH and Brit turn out over time to be as good operations as their other Insurance subsidiaries have been of late, given current market valuations etc, 1.5BV is certainly not unreasonable for this. If we get a hard underwriting market and/or other investment holdings perform well, then Prem may well turn out to be right in his assessment. Some ifs in there for sure but the market certainly is more than pricing those risks in at current levels. It will be an interesting next 12mths for sure and a lot more should be clear to us by then.
Q1 2020 Results
in Fairfax Financial
Posted
I am a little concerned that they reported only 83M of losses related to the pandemic.
Whereas MKL reported 325M in business interruption etc. I am wondering how well they are reserving.
Their investment returns have been abysmal for this entire cycle everything from hedges to wrong stock picks to poor long term holdings here. So by now we have a balance sheet that is the most leveraged it been in a long time and I am not sure how well prepared they are for a big hit.