SafetyinNumbers

It’s a small country but I don’t think it takes a lot to predict redemption here. I assume mostly retail making the bet. The preferred aren’t very liquid so most hedge funds would pass.

I don’t think that makes any sense. I think FFH.PR.C and FFH.PR.D are close to their reset dates so likely prime candidates to get redeemed at par.

I really struggle paying up for quality. I think it’s because I worry about multiple contraction and because to get right tail type returns, I’m relying on multiple expansion. I think I understand why multiples keep expanding and I don’t know how it ends but I still struggle betting on it. How do others think about it?

Thanks for listening!

My understanding is they can maintain premium growth of 5% and return 75% of FCF back to shareholders via the dividend and buybacks.

As you pointed out in the first post, didn’t Peak sell its stake in Rawlings and then payout a special dividend?

Nice find @Hoodlum, thanks for sharing. I assume the other 15% is owned by management.

There is some but I think most of the buying happens post announcement and the people buying now usually sell into the demand leading up to the add post announcement.

I assume most of the buying happens after it’s official. That leaves 10 days to get positioned. I think it’s interesting to think about where it trades by the close on Dec 20 or by the end of the year.

In Canada are you including the ATS volume as well or just the TSX?

Anecdotally, I find it to be very idiosyncratic. For Fairfax, I am more optimistic because unlike a lot of adds that are already widely held by the largest active managers, Fairfax is not. What I don’t know is if these funds will finally succumb to the pressure and consider getting to market weight once it’s in the 60 if not sooner.

I think they will also hold Digit for a long time. I also think they will hold the TRS for a long time.

No, the relationship between P/B and ROE is exponential because of how much value the compounding at higher rates creates.

That earnings floor is dated and doesn’t include much contribution from the equity portfolio. $175 on a given FTM period seems more likely than $125.

I’m not selling but I know of at least one fund that plans to exit on the index add regardless of price because it’s the catalyst they have been waiting for. I think a lot of investors make their decision on price as opposed to value so I expect others will sell as well. Like I stated in the original post, we could also whipsaw downward but that’s not my read. I’m wrong a lot. Where do you think we close on Dec 20? Below where we are now?

I’m not sure it’s core.

Fairfax is likely to be added to the S&P//TSX Composite in December 2024 according to CIBC. They estimate 900k shares of index demand. Since stock prices are just supply and demand, it's possible Fairfax has a big price movement around this event either up or down depending on the flows. I expect the price movement will be upward but it's possible many investors are using the index add to lighten up their positions because it was a catalyst they were waiting for and they don't see another catalyst so the risk is multiple contraction and a drawdown. If there are enough of those shareholders the stock could whipsaw lower. In the case where the index buyers overwhelm short term oriented shareholders it will be up to value-oriented shareholders to provide supply. Given this board's collective holdings of Fairfax probably rank it a top 10 shareholder it's a pretty amazing resource that we can tap into. Please share how you think about the sell decision. Is it all at once? Is it based on price or value? What's the rationale behind either decision? I want to avoid a sell decisions based on concentration as I think sizing is unique to every individual. I want to make it clear, I don't analyze all of my sell decisions like this but I think Fairfax is a generational opportunity so I don't want to make a mistake. My current plan is to sell when I expect forward ROE drop below 10% because that's my hurdle rate. I chose it because it's long term equity returns and it's what I needed to make to be comfortable when I was made redundant in 2012. It's designed to keep me invested as Fairfax has a lot of right tails and I want to be exposed to them as long as possible. I think consistent double digit ROEs will lead to multiple expansion. Right now the streak is at 4 which includes 2024 because it will be hard to lose money in Q4. I think the streak can run to 8 years at least given the current outlook. The outlook will change but I think its a small leap that ROE averages double digits for 8 years or more. If so the remaining shareholders might want to stay where they are being treated well. That could lead to untold multiple expansion. The beauty is its a free option because the base return is so high. If anyone feels comfortable sharing their own sell plan, please do. At the very least I think it is worth thinking about. I think mine is going to be hard to stick to. Hopefully because the multiple is so high but growth is still good and not because I see something I think is better and I'm wrong about.

I'm not sure it matters much for near term ROE but it could impact capital allocation decisions. If the market hardens then Fairfax might slow buybacks especially if the P/B multiple is expanding. If the market is softening then Fairfax might have more cash for buybacks or to buy in the minority interests. This year they slowed premium growth to buyback stock. I think strategically to get ahead of the 60 add.

The Ben Graham Value Investing Conference (featuring Adam Waterous from Strathcona) is on April 8 so fair to assume Fairfax India AGM is on the 9th and Fairfax AGM is on the 10th. https://www.ivey.uwo.ca/bengrahaminvesting/bgcvi-events/2025/04/2025-value-investing-conference/?utm_source=google&utm_medium=cpc&utm_term=&adpos=&gad_source=1&gbraid=0AAAAADvlxZdoVkuwEueSz6nVuNiFwIFLA&gclid=Cj0KCQiAlsy5BhDeARIsABRc6Zumbx_bDO6NwxclCd6RjwJ3HpXy-2KvnoA8_CZtX8dn3cq6AQTg6AUaAiEAEALw_wcB

I think the risk also goes up when management changes and ultimately they are generalists so it’s sensible to sell at the same time.

Thanks for listening! Best feedback so far

My sense with Fairfax is that they will stick with management until management is ready to sell. I assume Stewart is the reason they did this deal and when he’s ready to sell, FFH will also exit just like STLC. For ZZZ and presumably Peak Achievement, buying at a fair price, adding some leverage, stripping cash not needed for reinvestment and exiting at a great price.

1. When they have the cash to buyback the shares. My guess is when they sell some Digit. Likely years away. 2. They don’t have to but it’s nice to be able to buyback shares at market without paying a premium. 3. No reason why not. Many investors are afraid of a decline in earnings from the TRS in a given quarter but from a liquidity perspective it’s a pretty low risk. The stock would have to fall more than $500/sh to approach how much FFH makes in an average quarter. It’s a risk they can easily handle.

Agreed. Also, I think to get the company more stock before the 60 add.

My guess is that he bought the shares on margin probably using his original stake as collateral. But he did sell enough to pay off the loan and have a nice pile of cash and stock left over.