SafetyinNumbers

As @Parsad mentioned, they also own Sporting Life. Maybe they can see UA sell through in Canada turning.

I use three methods to triangulate intrinsic value for Fairfax. 1. 15x earnings which is a fair market multiple for above average ROE which is north of US$3000 on trailing EPS. 2. 2.5x BV which is reasonable for a business with a history of compounding BVPS in the high teens for 40 years. This is also north of US$3000 on current book value. 3. Float + book value which is what I call the Buffett method. The idea here is that float for a high quality insurance company is always growing and thus represents an asset to equity holders and not a liability. For Fairfax, in particular, I think they are very conservative with reserving. Excess reserves are just liabilities waiting to be converted into equity. That also gives a value north of US$3000/sh. My view is that there is plenty of margin of safety when buying at a > 40% discount to these measures.

Investors that project their own investment style onto Fairfax will have trouble owning the stock. It’s a big part of why the discount exists. Expected value investing is probabilistic and most people are deterministic. One isn’t better than the other, it’s just different.

FFH owns ~54% of GFR via WEF III. I think b/c of the fund wrapper we will mark it to market as well. We could exceed BMO’s 2026 capital gains expectations in Q1. Of course, we don’t get credit for the equity accounted names that are having big year to date performances like Eurobank and Dexterra.

Apollo out with a presentation on why the yield curve is steepening.

No, I mean to say each insurance subsidiary has different jurisdictions where they own the shares so I don’t think anything flows back to the Canadian holdco until it gets a dividend from each respective insurance subsidiary.

They get included in FFH earnings in a one quarter lag. Same as Poseidon, Exco and probably the rest of the equity accounted positions. I don’t think it’s relevant. The position is owned by the insurance subsidiaries

Using limit orders makes sense.

FFXDF and FRFHF are not ADRs. They are the same shares listed on the TSX.

As far as I can tell the holding company merited with the operating company. No implications from FFH from what I can tell but I suppose it’s possible they could use the reorg as a reason to mark to market. Seems unlikely.

My guess is he’s waiting for it to be cheap. It still trades north of book value plus float doesn’t it?

From the notice, it looks like they sold all of their Eurobank shares on the holding company merger when it happened in December. The difference is the move up in EUROB since then. Some traders were probably paying closer attention and cashed in when it traded well above NAV for a little while.

BRK didn’t ditch book value. Investors back then were anchoring to 1x book value as a proxy for fair value. Using ROE in conjunction with book value to get a P/B multiple is similar to using an earnings multiple.

I meant vs the value of Eurobank. If each ADR is half a share that’s about $2.40 vs the $2.03 redeemed.

That’s a big haircut isn’t it?

Because it’s a balance sheet based financial and the earnings streams are variable.

As the great George Costanza once said: “It’s all pipes!” i.e. it’s all connected. i use three ways to triangulate intrinsic value. P/E, P/B and float + BVPS.

What do you consider OK returns? They are using capital to buyback stock and buy in minority interests on the insurance companies. These likely have returns north of 15%. Is that OK or is that good?

I think book value is as important as ever but it needs to be used in conjunction with ROE to come up with a P/B that reflects intrinsic value.

So what’s a fair valuation?

Do you think about what returns are on incremental capital?

I agree with you that Fairfax recycles assets which recognizes value in the portfolio but the way you wrote it suggests this is an active decision to get recognition for value creation. Fairfax seems to collaborate with their jockey to make sell at a great price. One of the highest risk moments for an organization is change in management. Deciding to sell with management makes a ton of sense to avoid losses but also because their partner gets rich and leaves on the best terms potentially ready to business again. I think Berkshire is a different situation. I’m sure there are marks that could be taken up but there must also be marks that can be taken down. Otherwise, wouldn’t BRK have a higher ROE? Maybe all the businesses are reinvesting like Amazon but I don’t think that’s the case. With FFH, they only started taking significant stakes in companies what 15 years ago? The duds take losses immediately reducing book value even if they ultimately recover. They are likely to own winners for a long time. We have only recently started to see these realizations which makes sense given how much time has passed. The accounting defers all of the gains and juices all of the returns. We don’t see the multiple expansion until it’s sold. In a best case scenario where ROE is 20%+ /yr, this becomes a reliable source of ROE. I think understanding the accounting and what that means for forward returns is at the crux of understanding how much of an opportunity Fairfax is at these prices. The sell off this week was created by an analyst that is a reflection of his clients and therefore well respected. Clients decided to ignore the equity portfolio a long time ago because it wasn’t predictable but enjoyed it as it translated to book value during the heard market and rising interest rates period. As Viking has pointed out the FV/CV is big and growing. Fairfax is generating an incredible amount of capital from its investments and is reinvesting it north of 15% with high certainty either at the portfolio company level, at the insurance portfolio level or at the holding company level. I use a 90% confidence interval which is entirely based on my assessment of probable outcomes. Since most people don’t think probabilistically its judgement based and it’s possible to be wrong which makes most investors uncomfortable.But of course, that’s what makes a market. The BMO analyst, by ignoring the equity portfolio and the power of compounding has made a market where the odds seem out of hand. Even BMO’s price target tells us that return expectations are incredibly high. This analyst uses 9.5x EPS and 1.45x BV. That’s a 10.5% earnings yield. That’s a very high return expectation over the long term on conservative estimates. It’s hard for me to imagine a world where he’s right in the way that he expects but we’ll just have to find out.

And the FTM PE is overstated because it’s based on adjusted EPS not IFRS EPS.

Nice find. I was just thinking about EXCO today. That is a nice boost to ROE if it reports strong earnings as its equity accounted.

Given how conservative they are, if they booked a gain it was probably a success.