SafetyinNumbers

Management fees really aren’t that high with the 5% hurdle rate.

A decade of low interest rates was enough time for people or at least prospective Fairfax investors to forget how valuable float is. I think Buffett has said that a good proxy for intrinsic value is book value plus float. BRK.B actually trades close to that while Fairfax’s market cap is about a third of that IV estimate.

Could be the buyback. It will be a month before we find out. They filed last months buyback today. Unfortunately no block trade like at the end of last month.

Really great stuff as usual. I group the insurance investments with the equity investments but I like your way of looking at if much better. The returns are exceptional.

This is all terrific, Viking! Thanks. What about Digit? I think that investment was made in 2017 and might make @keegomaster more forgiving of the investments made in that period.

I think that would depend on the price. It’s an interesting exercise to think about what a third party would pay for all of Fairfax’s equity portfolio if given the chance. Arguably, the market is not giving it much value at all.

The Asset to equity leverage is just another way of saying our float is too big, isn’t it? Earning $3bn a year should help and I’m guessing you would prefer FFH build capital as opposed to share buybacks. It’s an interesting trade off.

If it’s not the debt then you think the insurance business is too big vs the other holdings?

Is it the debt at the holdco that concerns you? What do you think the risks are associated with that debt?

Viking with great analysis as usual. I think the impact to book value from IFRS 17 could push BV closer to $700 which will make it look slightly cheaper on P/B all else being equal.

It's hard for me to argue with them on market timing of interest rates. They seem to be doing pretty well. I can't imagine what they would do with the book right now that would make me want to sell the stock because although rates might come down, float and premiums are likely to keep growing. It's hard to see operating earnings being under US$100/share in 5 years so it's hard to see returns being under 10% year over 5 years as well. That's without attributing any returns to the investment portfolio and I don't believe they have had a negative 5 year period on the investments. If the stock goes down, don't buybacks go up especially if premium growth slows down? Does that makes drawdowns temporary until we get to 1.2x book value?

Another way to look at is book value has grown just under 9% / year since inception and arguably intrinsic value is worth well north of book value so actual investment returns are higher. I think that’s higher than Indian ETFs but I don’t know how to check that for sure.

Thanks. I think it’s important to note that on average the shares issued for the performance fee were done very close to BV while the buybacks have been done at big discounts to book. Arguably, the strategy is effective. They have a lot of work to do this year though and it will certainly be addressed at the AGM.

I think about these questions a lot. Why does the discount exist today? I think it's a transition to ETFs for active investors wanting to express "bets" on India combined with a transition of active investing to quants and quality investing. Quants want predictable earnings streams and so do most active investors. The active investors left over are mostly value investors and they do not like to buy on upticks so the discount persists. Does the fee structure matter at this discount? I think the fee structure actually matters more the bigger the discount is because the fees are paid in shares. I think the original intention of the performance fee being paid in shares was to incentivize the discount/premium to narrow at least every three years. At a discount, minority shareholders are motivated to close the discount so that less shares are issued to FFH. If the minority shareholders don't step up then the independent directors are motivated to do share buybacks to help close the discount or at the very least to prefund the performance fee. I have been expecting another SIB ever since the recent sale of IIFL close. They have taken a month off of the NCIB which usually happens before an SIB is announced so maybe they will act soon or wait until later in the year closer to the performance fee calculation. What will cause the discount to close? The first borrowed/paraphrased from, Trevor Scott, at Tidefall who owns it in his fund is that Prem will regain his status as preeminent investor based on FFH stock performance. FIH.U has a float less than $1b, if FFH returns to a decent premium to book over the next three years, investors will likely come for FIH.U. I recognize this time frame is too long for most active investors. Second, a successful completion of the Anchorage IPO. If Prem's rockstar status in India can get Anchorage a premium valuation on the back of holding a premium asset like BIAL, it could become the growth vehicle for FIH.U. NA investors might find it easier to buy FIH.U instead of buying Anchorage directly.

With less debt, they wouldn't have been able to buyback as many shares as they did. I don't see how comparing it to BRK helps your position.

Can you expand on why you think leverage hurts the increase in equity/share? Usually leverage accelerates returns as long as they are above the cost of debt, which they certainly have been for the past 5 years.

USDCAD was about the same level as now at the beginning of 1986 so arguably it’s an apples to apples comparison.

The net effect of the current accounting policy is to increase long term ROE which should result in a higher P/B given the strong and logical historical correlation between the two.

I think the issuance of the shares was definitely planned that way. Before Henry Singleton bought stock back at low valuations he issued a lot of stock to grow at high valuations. That's exactly what Prem did because when shareholders were big fans of what ended up being bad trades, the stock had positive Social Value i.e. it traded above Intrinsic Value. He used that paper to make what have ended up being incredibly accretive acquisitions. I chuckle when people tell me they don't like the stock because they don't think Prem is a great capital allocator. They are only looking at the non-insurance side and quite frankly they are wrong about that too as we are all about to be reminded once again.

Parsad, would you lump WRB in with MKL, FFH and BRK? Are there any other insurers that you consider comps?

If any other P&C insurer had made the Digit investment, they would probably get a premium multiple for it.

They have been fairly constructive for some time and were probably waiting for a downtick to make it official. It's still really early based on their own estimates. I don't think they will regret the upgrade.

BMO upgrades to outperform C$1050 price target.

My understanding is that if the market softened that Fairfax would have a lot of excess capital free up for buybacks and since we are still well below 1.2x book maybe that would help us get multiple expansion faster. Growth is better but with Fairfax’s insurance business so much bigger as a percentage of its market cap than the peers, I think it’s a mistake to paint them with the same brush.

Market reacting today learning Viking has trimmed some of his FFH position