SafetyinNumbers

A value trap is usually a situation where the IV isn’t growing. That’s not the case here.

I prefer to see them issue debt to buyback shares vs turning away potential investment opportunities. Do you think if IDBI happens and it’s a GP/LP structure with management/performance fees attributable to FIH, that it will help close the discount?

I call what they do, Expected Value, which is a probabilistic approach to investing. This is why they can make venture bets and buy commodity companies which makes Buffettians and Mungarians wince. Their size makes them skew towards quality especially with respect to the jockeys. Quality with respect to commodity companies means low costs and long reserve life.

Thanks! I’m not used to having concentrated positions and Fairfax is pretty special. I haven’t traded around my position and have only added. My plan is to trim when I forecast forward ROE < 10% which should keep me in the position for a long time. I think it will be challenging (but rewarding) to hold on as the multiple expands well beyond 1.7x.

Someone needs to buy the stock for it to go up. Buybacks are exactly that. If buying something at 5x earnings which is then buying back stock, it should go up even without multiple expansion.

The structural issues are it’s not eligible for passive ETFs, it’s a PFIC and it doesn’t screen well for quants. It’s hard to replace that demand for shares so the price is set by the marginal buyer who wants a big discount to BV. Could they be more like Brookfield and mark everything to a full valuation? Probably not, because it’s not the culture.

I think it’s idiosyncratic. Could see some profit taking but the seasonal trade is still in Fairfax’s favour which is not surprising given all of the news flow over the next 5 months.

Thanks @Viking and @djokovic1 for the kind words. I think Einhorn has pivoted to the second of your options but it took a long time to get there. He has institutional constraints which makes the game even harder.

Thanks Viking. Ultimately, it comes back to us as shareholders and what multiples we decide to sell. So far, Fairfax has been buying up the weak hands so worst case, that continues!

Fairfax India is doing podcasts to help shareholders understand the holdings and get to know the management teams better. Here is the first one on BIAL: https://www.fairfaxindia.ca/podcast/

Thanks! I remember seeing this. I’m a big fan of his writing.

Some directors are really good at administration and legal matters. They are really important at making sure that things are done correctly. I didn’t appreciate that until recently.

Any buyers that take up space in shareholder register and are more likely to add than sell have the same impact. In theory, it should be exponential impact as holders with large taxable gains act the same way. There are more of those every day too. The stock is up 9% so far since the announcement. The high end of the 5-10% range I think that most people expected. What will be interesting is how much multiple expansion it gets once in the index which will take place over years.

If you’re asking if we break $3000 by year end, I would say no. By June 30, seems very possible.

We want different things. I hope they keep investment to equity leverage around 3:1. Anyway, circling around to my original point. That’s what makes it a better mouse trap to me. The debt is structured well, reserves are consistently redundant, CAT risk has reduced as a percentage of total premiums with growth in other lines.

They were buying float cheap using expensive equity which was trading at multiples of book. It looked a lot riskier than it was especially if cutting premiums. The book value gets the benefit on acquisition but then gets hit through the income statement as the losses are recognized through claims. You didn’t answer the question on BRK’s leverage. I haven’t studied it like you clearly have. I only did a few spot checks and was surprised how low the float per share was at various times.

What’s been Berkshire’s investments to equity leverage since inception? I do not think Buffett’s rule is paramount. When making probabilistic bets like writing insurance, losing is expected. The same thing applies to probabilistic investing which I appreciate is not how most people invest these days. They follow rules instead and it has worked so I’m not throwing shade just highlighting different approaches. Cheers!

Big difference between reporting and investing. Otherwise most financial journalists would be great investors instead as the jobs aren’t that different except for the probabilistic analysis part and the latter pays a lot better.

I wasn’t taking away from Berkshire. In my view, Berkshire’s success has a had a lot more to do with superior stock picking than its structure while FFH has structured itself worn more leverage so the hurdle rate for equity returns is lower which is what I think makes it a better mouse trap. I know you don’t like leverage though.

It’s a pretty common mistake. Under appreciated reason the stock is cheap. It doesn’t screen well.

I think he was asked questions that an investor would know the answers to or have an opinion on but that a journalist would not which put him in a tough position.

Meanwhile, Markel. FFH’s half brother, is trying to be mini-Berkshire. Both seem like a good source of future FFH shareholders. I went on the Know Your Risk podcast last week and shared my view that FFH has actually built a better mousetrap than Berkshire. https://podcasts.apple.com/ca/podcast/know-your-risk-podcast/id1121724780?i=1000741063660

Number 5 alphabetically, number 1 in most of our portfolios

Feedback has been that generally people didn’t like this interview so what questions do you think could have made it a more interesting discussion?

I think it has everything to do with ROE. With the same earnings power, the company with the a large amount of intangibles will have a lower ROE vs the one without. P/BV only matters in context with ROE.