SafetyinNumbers

Looks like Morningstar published again on Oct 10 and upped its estimates considerably boosting adjusted EPS estimates (which quants care about) and potentially the stock.

Consensus seems a bit low for Q3 and maybe a bit high now for Q4 post Milton although there are the special Stelco and Peak Achievement gains expected in Q4 to offset. I also expect reserve releases to step up now that we are lapping the hard market which began ~4 years ago.

It all depends on the extant shareholders and where the marginal sellers are whether they are basing their decisions on price or value.

Buybacks continued in September

Fairfax has fickle marginal shareholders

indeed, nice catch. It is indeed inevitable. The most important name to catch is Intact Financial which almost every active fund is overweight but has struggled to grow book value. Multiple expansion has helped it outperform other financials but not owning FFH gets more painful when it's in the 60 and when its a bigger weight than IFC. Although it might take a while as IFC will likely be issuing stock at 2.9x book value which will be accretive which increases its float weight. Meanwhile FFH is buying back shares which has the opposite effect. Growing 15%+/yr and multiple expansion more than offsets that though.

Thanks but I'm sure I was also channeling your views and others on the board in the article!

I’m glad I got on the record after the AGM that FFH had a great shot at outperforming BRK when it reached the same market cap ~30 years ago benefiting from a lower starting valuation and dramatically bigger float. I hoped it would inspire some long term thinking but most people are concerned about avoiding short term drawdowns. Article attached if anyone is interested. FFH G&M 5.1.24.pdf

It’s generally stocks that won’t pass most investors screens because there is risk on execution but the return profiles look very compelling. I tweet about them and some of the other things I own @Brownmarubozu. I don’t want to pester the group with ideas they will never consider.

I’m literally borrowing money, I’m finding so many bargains. Did you ever buy E-L Financial? I think I mentioned it to you a few years ago. Still a 40%+ discount to stated NAV and likely over 50% on liquidation value.

@mananainvesting asks a great question for the board. How do you decide when to trim or sell all of your Fairfax position. All of the inputs you may consider are interesting to me. My plan is not to sell any until I forecast forward ROE below 10%. I think it will be very hard to do that.

I think they like to sell with management so incentives are aligned and they don’t get left holding the bag

I don’t know if that’s the right read. It seems like Sagard was a seller but management was not so that explains why FFH wants to stay in the deal. Sagard likely wanted to run the process to make sure they were getting a fair price. Presumably it was a price that FFH can still earn a 15% return which is what PE would be looking for as well.

Some estimates are for as high as $110b now but not sure what portion of that will be insured. https://www.inc.com/reuters/hurricane-helene-damages-range-between-95-110-billion.html

That’s what I heard at the AGM.

Does anyone know why they have been provisioning at 26% this year vs 18% last year?

Ben’s going to be Chairman, not CEO is my understanding. Presumably Peter Clarke is the next CEO.

I agree that it’s really hard for it to go to zero especially in the current set up given how much excess capital they are creating. The stock is still well below 1.2x adjusted forward BV and with buybacks in place, I think any decline in the multiple would reverse pretty quickly. I don’t think there is a real big risk when Ben takes over as Chairman although the company will probably look very different by the time that happens.

Congratulations 20% CAGR for 20 years is 38x but that’s before taxes. I’m at ~18% in the past 12 years. After leaving the UBS prop desk in 2012, I couldn’t find a gig where I had the same responsibility so I started by focusing on singles and doubles to make sure I wasn’t forced into a job I wouldn’t like. Once I could afford bigger drawdowns, I started to take more risk. I hope it works out.

Atento was the biggest position size I ever had (personally) before Fairfax. My process is probably not as rigorous as most and I have never been great at position sizing. At some point (2019 probably) I decided I needed to let winners run after watching too many of them get away from me as I wasn’t thinking enough about the right tail and was selling to avoid drawdowns. I thought it was a form of resulting to stop that mindset because Atento didn’t work out. Ultimately, I do think with FFH it’s very hard for book value to compound under 10% for the next 5 years and that’s my hurdle rate. It’s the highest conviction idea I have ever had where I think the downside is so limited and the right tail so wide open in the medium term (5 years). But I could be wrong.

What’s your definition of rich? Your returns seem phenomenal.

For sure but I share to be helpful not to be a menace to society.

I will be very depressed I’m sure but that’s more about looking/feeling stupid. I don’t have kids and I’m not into material possessions so that helps keep spending down.

Thanks for the assist.

There has to be an opening first. Buybacks continue in the meantime. I see no reason to sell into those either.