SafetyinNumbers

When it vests, the stock is issued out of treasury stock isn’t it? Is that what you mean by retire?

Barrick just wants the ETF demand for its shares. FFH wouldn’t do that. If Barrick does leave, it does open a spot in the 60, which could benefit FFH’s multiple.

The compensation expense is based on when the shares are awarded but it hits the income statement as the vest. I think the accounting is correct to exclude the shares from the BVPS calculation but to keep them in the diluted EPS calculation as they are promised to employees much like with in-the-money stock options.

I have met a few financial advisors that use Morningstar as a screen which makes Fairfax uninvestable for them. Effectively it’s a quant screen.

The employee is getting the gain and Fairfax is recording the expense based on the share price when the grant was made. I assume it goes through compensation expense based on the vesting to keep with the matching principle. As shareholders I suppose we benefit from a lower compensation expense.

I like that we dig into all of the details and question every decision. But I wonder if FFH shareholders are more critical of its management team than BRK and MKL shareholders are of their respective management teams. If so, does it hurt the multiple? One way I could see how it would if, someone sold their shares because of a capital allocation / investment decision. I met a fund of funds investor at the Markel AGM two years ago who sold FFH when the TRS were announced because he didn’t like financial engineering. FFH just closed part of that trade which has made $2b+ in 4 years with arguably nothing at risk. I try to focus on the big picture because it’s hard to see how ROE doesn’t average above 15% over the next 5 years. I use a 90% confidence interval which is based on my judgement so it may not be worth much to you! In the past 4 years, no individual investment decision made me consider selling my shares so I’m doubting something will over the next 4 years. That being said, it’s still important to analyze every capital allocation decision and consider both the downside and the upside. There is a big difference between a 15% ROE and a 25% ROE over the next 4-5 years and the odds of each outcome are probably closer than most people think. I think I have this framing because hedging is off the table and I think they are focused on quality. Perhaps most investors don’t believe that part and those will be the ones who sell below 2.5x book value.

I don’t see it that way, if they are paying an employee 100k and offer 100% match for up to 10% of their salary, for example, and use the extra 10k to buy stock instead of paying them $110k, how is it diluting buybacks? You are basically saying they should pay employees less as employees salaries come out of shareholder pockets.

I believe they have dollar limits as well so I don’t think they would take the full hit in that scenario.

It’s not real dilution because they buy the shares in the open market.

That would be inconsistent with most practice. They use the diluted share count for EPS but not for BV because the shares haven’t vested yet.

How about they reduce it by 10% every time it gets back to $2.8b?

They closed the TRS and bought the shares back from the counterparty. Two separate transactions but with the same counterparty.

The only reason I could come up with is that they are concerned about the volatility of swap on liquidity given how big the notional is now. I have certainly heard that view expressed by others but I got the sense it was more of a concern about the impact on quarterly earnings volatility.

By buying the shares with cash as they are awarded, it’s really just additional salary. The purest form of stock based comp.

It would be vesting of grants, not new ones, to be clear. My understanding is that company does a match of a portion of the employee’s salary. Viking’s chart shows almost 2m shares in treasury for employees, so it seems reasonable ~10% of them would vest annually plus they basically bought the same amount back to replenish them.

It’s hard to have faith that analysts will do what makes sense but their core earnings estimates should be climbing. Fairfax should have target prices of at least 15x on core earnings but it will take analysts a while to get there.

I think we may see these reserve releases for years to come following the hard market for the last 4+ years.

We’ll find out in 3 weeks I guess.

It seems like the equity value is pretty small versus the other financing

Wouldn’t that be a reasonable number of shares vesting for employees in a year?

Ah I see what you’re saying. Sorry it took me so long. The offset is most likely employee shares that vested.

How are you calculating $240m? It’s fair to assume the other 12k went into treasury stock for employees. That’s about $17m.

So these numbers? What’s the problem?

Can you share the specific numbers you are referring to? I’m not clear what the issue is.

It looks like they bought those shares back.