ander
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Posts posted by ander
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5 hours ago, MMM20 said:
Why doesn’t Prem account for the retained earnings of their mark to market investee companies when talking about Fairfax’s normalized earnings power? Of course dividends are only a small piece of what matters. He even mentions that the $15 dividend is only about 12% of FFH’s own operating income (IIRC) but doesn’t make this point for their mark to market investees, right? Normalized earnings power should be $150-200/share and maybe he just wants to set a lower bar? Or maybe he would argue it’s captured by the idea that they’ll sell stocks for gains over time? What am I missing? Of course we can just make the adjustment ourselves, but the way he’s doing it is selling their underlying earnings power short. Anyway, that’s my one complaint about what’s otherwise a masterclass - a great letter.
Definitely conservatism re: the $125 / share versus what should be $150+ normalized earnings. I would not want him to overcommit and disappoint.
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1 minute ago, Gregmal said:
If they’re forced to sell anything because the stock trades back to where it was a few weeks or months ago then they’re idiots.
@MMM20 I agree with Gregmal they're idiots if they do not have a margin of safety for stock price movement that forces their hand. I have an oversized position and added to it - am only annoyed it's not down further! But @MMM20 what do you think the price threshold would be that would actually force their hand??
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14 minutes ago, Viking said:
So let me get this straight… you are shorting a company that is earning a record amount of ‘good’ earnings? Thats not in dispute. And you know they will be aggressive with share buybacks.
You also know the stock has had a monster run and there are likely lots of shares in ‘weak hands’ - shareholders who are easily panicked.
When is the best time to release your ‘report’? A week before earnings. When Fairfax is in a blackout period - and can’t respond properly or can’t buy back stock.
What do you think is likely to happen next week? Think we might see some buybacks?
So what is the play? Short a week before earnings. Make a quick 12% on the downside. Before earnings come out, flip to a long position and make another 12% as the stock recovers. Make 24% return over a month or two. Add a little leverage. That is a pretty good trade.
This looks an awful lot like what used to happen to Fairfax back in 2003-2005 when it still traded on the NYSE. Back then it happened a couple of times a year. I made a lot of money over the years playing the big swings in Fairfax’s stock price.
Is anyone else experiencing deja vu?
Doubt MW is playing it long after covering but who knows. But wouldn't be surprised if they're wary of index inclusion with the timing of this report -- cover before Fairfax added to index maybe.
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51 minutes ago, gfp said:
Read the presentation. Nothing stands out as material. He's not saying there is fraud but rather the accounting practices are aggressive in some cases.
1) In the interview on CNBC, he did mention x-head of PWC (the auditor) being on the board. R. William McFarland. Carson suggested this board member might be keeping the auditor less independent than otherwise would be. His bio is at the bottom. Seems like he's involved as a director at a number of their businesses. I do not necessarily like the connection if he was the former auditor for Fairfax but nothing sinister in itself. He may know the businesses better than others and can possibly add more value and is appropriate to be on the board. Anyone have a view on Bill?
2) In the interview on CNBC, Becky asked where he would cover. Carson did not answer. Said if book value should be 20% lower and should trade lower than book value at 0.8x or so instead of premium because they are manipulating book value.
Overall, I find the short case to be extremely weak!! Guess it is an opportunity for investors / Fairfax to buy additional shares lower.
Mr. McFarland is the Chairman of the Board of Directors of AGT Food and Ingredients Inc. and a director of our publicly traded subsidiaries, Dexterra Group Inc., Farmers Edge Inc. and Fairfax India Holdings Corporation. Mr. McFarland previously served as Chair of the Board of Directors of The Conference Board of Canada. Mr. McFarland was the Chief Executive Officer and Senior Partner of PricewaterhouseCoopers LLP (Canada) from 2011 to 2018. Prior to that, Mr. McFarland was a member of the executive team at PricewaterhouseCoopers LLP (Canada) from 2005 to 2011, having been admitted to the partnership in 1992 and having led the Greater Toronto Area audit practice from 2002 to 2005. Mr. McFarland is a Chartered Professional Accountant and a fellow of the Chartered Professional Accountants of Ontario.
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On 1/5/2024 at 3:28 AM, Viking said:
+1 Fairfax needs to re-build investor confidence. That is extremely important. Increasing the dividend is a no-brainer way to do that (yes, just one of many things that need to happen). And a material - 50% - increase in the dividend is even better (as long as it is sustainable… which it is in this case).
Three things drive a share price:
1.) earnings
2.) multiple
3.) share count
The spike higher in Fairfax’s shares the past three years has been driven by a spike in earnings and a rapid decrease in the share count. Multiple expansion HAS NOT HAPPENED. Yet. I think it will. But to get multiple expansion the management team will need to keep doing what they are doing - delivering solid results and communicating well.
Multiple expansion is rocket fuel to a share price.
I think this is an incredibly important point for all of us long-term shareholders. I do believe they are well positioned to execute and agree that "Multiple expansion HAS NOT HAPPENED." and "Multiple expansion is rocket fuel to a share price." I also agree it will happen.
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14 hours ago, Viking said:
If Fairfax reduced its TRS position (simple exit of the position with no explanation) at around current prices it would make me question how cheap the shares really are.
If Fairfax thought the shares were very cheap today would they exit the TRS position? No, i don’t think so.
I could see Fairfax exiting the TRS position when they feel shares are close to fair value (by close i mean within 10%).
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From a capital allocation standpoint my big surprise this year is the minimal buybacks we are seeing from Fairfax. At least compared to the past 5 years.
Clearly, Fairfax is seeing better opportunities doing other things. I am not complaining.
Fairfax shares are up significantly over the past 2 years.
————-If we saw Fairfax exit the TRS position and stop buying back stock it would likely tell me they no longer see their shares as being very cheap (perhaps just cheap).
————And if we saw Fairfax make a big acquisition by issuing new shares at current prices… Well, that would tell me Fairfax saw their shares as being fully valued, and perhaps even over valued.
"I could see Fairfax exiting the TRS position when they feel shares are close to fair value (by close i mean within 10%)."
@Viking Appreciate your analyses. Any guesses what Fairfax (i.e., Prem) may view as fair value today? or what do you think is fair value today?
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On 11/12/2023 at 12:26 PM, Thrifty3000 said:
^ here is a post from August where I provided a table with about as conservative of a forecast possible of the earning power of each category in the investment portfolio in 2027.You can see it’s by no means a stretch for the investment portfolio alone to earn $140+ per share. You can then add to that whatever number you want for underwriting earnings (say $0 to $50 per share) and for any opportunistic surprises (like pet insurance subsidiary sales), etc.
The most important number is the earning power of the bonds. My table shows a 4% interest rate. I follow the same logic as Leon Cooperman on this front. In a world with at least 2% inflation and 1.5% GDP growth it’s hard to envision a long term scenario where bonds don’t yield at least 4%.
Long story short, people worrying about FFH earnings falling off a cliff in 4 years are likely overweighting the significance of underwriting earnings and underweighting the power of a huge investment portfolio that can produce solid earnings per share without any heroics from the FFH investment team.
There is some debate re: earnings post 4 years from now and of course hard to say what the world looks like the further out we go. I have BRKb put away for the next 20+ years and will take a look then unless if anything substantial changes. I see the clear path to why FRFHF has substantial upside within the coming years, but curious if anyone has a framework for thinking about long term value accretion 10+ years down the road. I know Prem targets 15%. Is that realistic?
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22 minutes ago, gfp said:
You can read the document I attached in the post above yours. It is just an approval for going up to 50% ownership of OXY through secondary market transactions (open market purchases). It keeps him from being capped at 25%, which is what he had prior FERC approval for.
It does not mean Warren is suddenly going to bid for a bunch of OXY stock or pay much more than $60 / share but you never know.
It specifically is not an approval to purchase the entire company, although I'm sure they could get approval for something like that if given enough time.
I don't think Warren is in any hurry to exercise OXY warrants unless Occidental was going to pay some crazy high dividend on their common shares.
(I took advantage of this opportunity to sell most of my OXY warrants (the 22 strike 2027s) over $48/warrant.)
I think that was a smart sale - I did something similar. I think he's just getting approval so no issue with caps and gives flexibility. I'm guessing the stock drifts back down as the "meme" traders / computers are done. I do think it's worth a lot more, but this reaction seems silly.
What is more important to me are the Form 4 filings.
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On 1/22/2022 at 8:22 PM, Viking said:
It is interesting to compare Fairfax’s current situation to what happened when we had the last big financial market dislocation in March of 2020. In March of 2020 Fairfax:
1.) insurance: losses from pandemic were unknown; lock downs were throttling business activity
2.) equities: many of Fairfax’s holdings were getting crushed (cyclicals, small cap, hospitality, financials, emerging markets).
3.) bonds: more of a mixed picture for Fairfax. Plunge in government yields would increase earnings and BV of holdings. Short spike in higher risk yields of higher risk bonds were an opportunity. Pain from much lower yields would only be felt in future.
Bottom line, Fairfax BV and earnings cratered. And the shares cratered.
Fast forward to today:
1.) insurance: hard market continues to roll. Economy expected to expand above trend in 2022. Prospects took very good.
2.) equities: we are seeing a bear market in speculative Nasdaq stocks. Fairfax’s top positions (Atlas, Eurobank, FFH TRS) are holding up well (so far)
3.) bonds: with yields across the curve spiking Fairfax should see interest income start to move higher again. There will be a hit to earnings and BV as current bond holdings are re-valued at quarter end (but Fairfax will be hit much less than most other insurance companies who have much more duration in their bond portfolio). If Fairfax is able to re-deploy some of its significant short term cash/holdings into longer dated bonds (yielding higher amounts) that will be a big, big win for shareholders (boosting interest income and locking in higher operating earnings in future years - something that would be highly valued by investment community).Bottom line, Fairfax in a much better situation to withstand the current market turmoil. And that is likely why we are not seeing shares sell off aggressively. At least not yet
$100 per year in income. What do you think downside risk is to that number on average? -
Filed that he bought another 1.9 mil shares. Did not buy as aggressively as he did in previous days. At 181.6 million shares.
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7 hours ago, Viking said:
YTD Fairfax has been a massive out performer. Fairfax is up 2% and the S&P500 is down 17%. I am quite impressed with the performance of Fairfax stock so far this year.
importantly, the outlook for Fairfax is quite good.
1.) Rising interest rates are a confirmed tailwind.2.) We know we are still in a hard market (+20% top line growth)
3.) Fairfax’s equity portfolio looks reasonably well positioned (so far) - but this could change in a hurry
Personally, i am hoping the stock gets killed (i appologize in advance to board members who have a full position). I am down to a low weighting (a little under 10%). I have been waiting for sub US$500 pricing and we are almost there. At $450 i would be a very aggressive buyer. We are in a bear market (middle innings?) and this will punish everything.
"Fairfax’s equity portfolio looks reasonably well positioned (so far) - but this could change in a hurry"
--any stand out to you as potentially vulnerable?
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Any thoughts on Fairfax exposure to tech (e.g., Digit, etc.) -- especially as lofty valuation multiples compress.
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Re: comments on how Fairfax is allocating to bonds and thinking of duration risk, I pulled the excerpts below from the 2021 Annual Report. They have about $13 B in investments (Associates, Common and Preferred) and have $36 B between cash and bonds ($14 B in bonds). The way I interpret is that Fairfax 1) thinks of the $13 B as their "excess" capital bucket that they can invest and 2) is likely to keep the $36 B in cash / bonds and will likely keep duration on the shorter side since they don't know how high rates may go (e.g., if rates at 8% on long end) -- and if there was an increase in the duration they would probably be thinking of that as part of the $13 B "excess" capital bucket they have.
As float grows so does the $36 B bucket which eventually leads to more excess capital to the $13 B bucket.
That's how I think about it.
2021 Annual Report:
"Inflation and higher interest rates are the big risks the markets face today. The CPI index was up 7.5% in January 2022, the highest in 40 years and the ninth consecutive monthly reading above 5%. The Fed is behind the curve as it was in the 1970s and we fear interest rates will increase significantly over time. We should benefit as our total fixed income portfolio, inclusive of cash and short term treasuries, has a duration of only 1.2 years (an average term of 2.2), but significantly higher long rates will have an impact on the economy. This may still be a few years away and, as I said earlier, we have companies with great management that should be able to navigate these “rocks” profitably! Higher interest rates will destroy the speculation we have seen in high tech and other growth stocks with high valuations, SPACS, crypto currencies, etc. Another risk we continue to see is China and its real estate bubble – which is being tested."
"Interest rate risk Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. Typically, as interest rates rise, the fair value of fixed income investments decline and, conversely, as interest rates decline, the fair value of fixed income investments rise. In each case, the longer the maturity of the financial instrument, the greater the consequence of a change in interest rates. The company’s interest rate risk management strategy is to position its fixed income portfolio based on its view of future interest rates and the yield curve, balanced with liquidity requirements."
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I'm not familiar with Allegheny. Does the transaction add new lines of business that Berkshire isn't involved with or is it just more with substantial overlap?
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1 hour ago, Cigarbutt said:
More disclosure is needed but if this is the typical OMERS' kind of deal, the interest rate is 10% and the gradual buyback of the 'non-controlling interest' will be based on today's fair value valuation (whatever inputs used to decide the range in valuation). For Brit (after a dissection of both parent and sub reporting), the OMERS' stake was bought at 4.30 book value per share (essentially based on the contemporaneous visible transaction), and, almost like clockwork (although it doesn't look like it), 0.43 cents per share (per year) was paid to OMERS and the stake was bought back at a constant 4.30 per share. So, this is the (financing) hurdle rate.
@gfp
The only explanation that seems to make sense is that the net difference has to come from the difference between treasury shares reissued and acquired.
Disclosure: in the last few months, i've been 'trading' here (to confess an addiction is apparently the first step) and the near future may provide a window of opportunity.
The Brit deal done was originally done in 2015? When was it bought back in?
I wonder if in this environment maybe the rate would be more like 5 or 6%?
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Learning Machine...Nice summary...I was in the process of posting something similar. I have never invested in gold. Now am looking at as one of many ways to bet on persistent inflation. Possibly a hedge. Figuring out best way to express bet. I was thinking about 100 bps.
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1 hour ago, modiva said:
Thanks for the insight. I looked at the past press releases and they have made similar authorizations that weren't executed fully. It is reasonable to expect that when such authorizations are made, the majority of such authorization is followed through, if not an update is provided. Berkshire doesn't seem to issue such press releases but they are doing regular, and recently significant, buybacks.
my understanding is the reason for the process behind these authorizations (versus Berkshire) has to do with it being a Canadian listing and the rules there.
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1 minute ago, Xerxes said:
Not totally clear to me. My read is that the regulators in India have to push the limit to 75% for foreigners (which may or may not include FFH - it is not clear).
If it does include FFH, than there would have to be cash outlay by FFH at a higher valuation, pushing up their cost basis. If it doesn't include FFH, than they get diluted.
I just hope the whole 75% increase ownership hurdle, is not a repeat of Pershing/SEC/Universal/Ackman fiasco, causing FFH to go backward on something that stated to be "done deal" on the conference call.
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On Blackberry
i knew it !!! at least someone on the call push for it and asked the right question.
The quarter had enough goodies in it, to offset lack of positive news on BB. Even the "Rude Gentleman" from Q1 2021, did not show up.
He was probably happy,
Thanks. That's exactly what I'm trying to understand re: consolidation. Are they buying a nominal amount, or accounting change or large $ amount? I'm just wary of them adding at possibly inflated multiples (could be a great deal, but things are frothy in this environment). And if so, if true value turns out to be lower in the future that would be unfortunate.
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On Digit, are they contributing any cash or proceeds to increase ownership to 74% in Q3/Q4? and presumably, if so it will be down at today's valuation? or do they own rights to purchase at lower valuation? or is it not an actual increase in ownership but since would be allowed to increase ownership, it triggers a change in accounting only?
From the Q2 report below.
"During June 2021, the company's 49.0% equity accounted associate Go Digit Infoworks Services Private Limited ("Digit") entered into agreements with certain third party investors whereby its general insurance subsidiary Go Digit Insurance Limited ("Digit Insurance") will raise approximately $200 (14.9 billion Indian rupees) of new equity shares, valuing Digit Insurance at approximately $3.5 billion (259.5 billion Indian rupees), which resulted in the company recording a net unrealized gain of $425.0 on its investment in Digit compulsory convertible preferred shares as described in note 5 (Cash and Investments) and note 6 (Investment in Associates) to the interim consolidated financial statements for the three and six months ended June 30, 2021. The transactions are subject to customary closing conditions and regulatory approval, and are expected to close in the third quarter of 2021. Upon closing of the Digit Insurance equity issuance in the third quarter, and upon final approval by the Indian government of its previously announced intention to increase foreign ownership limits in the insurance sector from 49.0% to 74.0% and the company obtaining regulatory approval specific to its holdings in Digit, the company anticipates it will consolidate Digit and record an additional gain of approximately $1.4 billion."
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Great results! On the Digit portion I read the Digit thread as well, but wondering if anyone had a sense of fair value. I understand the benefit of the mark-to-market, but in this environment (some companies being value at ridiculous price levels), anyone do work on what they think would be a reasonable valuation on Digit.
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For anyone looking for a replay of the interview:
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Anyone familiar with the process of how long it takes to get the $10 per share back (i.e., the trust value) after you put in for a redemption?
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No way to know how markets react tomorrow, but BB is down 25% after hours following WSB going invite-only.
GME down 23%
AMC down 37%
BBBY down 25%
Seems it's fairly widespread.
It’s back on. Odd flip flopping.
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Thanks to all for tolerating my idiotic idea.
At least the question brought up some interesting info & perspectives.
edit: Also thanks to Ander for starting the discussion to begin with.
Does anyone know if WEB & Chuck read CoBF?
How can they not?
edit: Someone should ask at the next (virtual) AGM.
Thanks to everyone for the feedback and comments.
I'm still in favor of the split (either 2 or 3 - in 3 you'd have to get a 3rd allocator) since you have 2 capital allocators (Ted and Todd), which would allow for at least 2 smaller Berkshires. I do believe it would create additional value. Arguments against have included: no incremental value created (I believe in smaller size even at 1/2 helps), not a permanent home for cos selling (they would still be a part of Berkshire Hathaway 1 or 2 or 3 (though 3 i would envision be cash only), not be able to reallocate capital (they would as cash is generated a capital allocator can re-allocate, except they have less businesses to choose from, but on the other hand plenty of businesses just as Buffett did 20 years ago).
Fairfax 2024
in Fairfax Financial
Posted
And further out, I'm guessing closer to $4,000+ USD in 7 years. Likely should be $1500 plus today and compound 17% per year gets you there.