SafetyinNumbers

They could participate pro rata in buybacks much like Exxon does when imperial Oil does buybacks.

FIH has a bigger discount but FFH has more leverage. Margin of safety seems high on both.

Fairfax India did an investor trip last week. My guess is that helped.

That’s helpful thanks. I gave up my CPA for a reason! At least it’s just an intellectual exercise only and not an issue that we have to worry about with FFH/Eurobank.

I was thinking a joint venture is like a partnership where there may be liability but an interest in a corporation would have limited liability i.e. non-recourse given the structure.

Joint venture would be different than equity accounting wouldn’t it? I was trying to think of a scenario where a liability would be created in an equity accounting scenario.

I believe a gain has to be recorded in that scenario effectively reflecting the bargain purchase.

Fairfax includes its share of earnings from Eurobank based on its ~34% ownership so the carrying value goes up by that amount every quarter. The dividend moves from carrying value to cash but since it’s gone through earnings once it wouldn’t make sense to put it though earnings again. Does that make sense?

Fairfax doesn’t have a lot of exposure to Canada. If there are big dislocations they could take advantage of them.

The swaps have different counterparties and different expiries. The crosses are likely just technical in nature but need to be refreshed for legal/accounting reasons. I assume they are just internal crossed from one bank subsidiary to another bank subsidiary of the same bank.

Today’s blocks look like them rolling the TRS. It happens every year since they put them on. There will be more over coming days is my assumption.

Any colour on the blocks? Time, size and who the brokers were?

FFH can only buy 9360 shares a day max unless they use the weekly block exemption. Yesterday there weren’t any meaningful blocks so it’s unlikely they bought more than the daily limit.

No problem. Since the Investor Day, oil is up $6, CAD is down which means FCF is probably up to ~$1b from $700m all else being equal. Meanwhile, the stock is down today because it’s not in XEG/XIC yet.

I think it’s just because it’s owned by value oriented investors who are worried about the market as a whole are trimming with no passive and quant inflows to offset it.

Have you considered SCR.TO instead of OXY? The investor day presentation especially the first 48minutes is worth a watch. Adam Waterous is already a legend on Bay Street as a banker but well on his way to making it as a creator of great companies.

Yeah, that’s the general idea. Stronger CAD and stronger Canadian economy is better for CAD exposed financials. It’s just a bet on the narrative impacting flows. I don’t think there is a lot of probability analysis around it.

Maybe sending a signal? December buybacks should also be announced by the end of the week. Given the large print near the end of December, they might have bought back over 1% of the shares last month alone. I have been picking away too despite vowing not to add anymore (it’s now a 47% position). I think the underperformance is due to some Canadian active managers moving to make their Financials exposure more Canadian and economically sensitive following Trudeau’s resignation announcement and selling that was deferred for tax reasons. Reasons to sell that are not related to FFH’s intrinsic value in other words. The short term catalysts prompted me to add but perhaps the market won’t respond as I expect. In the next 3 months we’ll have Q1 results which should be well above consensus, the shareholder’s letter and the AGM. We may also get more information about potential Anchorage and Ki IPOs. BVPS inclusive of the dividend might be $100+ higher in just over 4 months when they report Q1.

To be fair, I think he bought those shares on margin and I’m assuming kept what he didn’t need to sell to pay off the loan.

I own both and this is not a switch I would do. FFH returns are structurally higher due to leverage and source of earnings. There is an index add catalyst that might result in multiple expansion. ELF returns are based mostly on the performance of VOO and quality stocks which are harder to predict and the discount closing which is also hard to predict with no natural buyers.

There are almost no investors for small scale mines (<100k oz/yr production’ so GXS would not have been able to raise capital at a price that didn’t dilute the project considerably. By doing a stock deal, GXS shareholders get to participate in the upside.

I’m sure most people passed on the gold stock idea (most people invest only in quality and junior gold stocks are the furthest thing from quality) but MKO just announced a deal in Arizona risking only $5-10m to buy an operating gold mine out of bankruptcy. If they are able to optimize the mine it could double the existing corporate production run rate within 6-12 months. Given it’s less than <3x OpCF without it that’s a big improvement. The stock is up a bit since the announcement but this is a play for the cycle with a small amount of capital as gold mining has plenty of execution and geopolitical risk but the upside is multiples of capital given the right tails on production, resource size and the gold price.

That’s how I interpret the articles I attached above. I’m not a lawyer so could definitely have it wrong! I’m wrong a lot as I’m always trying to fill in the blanks when provided with incomplete information. This sort of structure does make sense and is consistent with other deals Fairfax has done except with this option to IPO. It’s really brilliant if that’s in fact the intent. It’s a home run for FFH and BX so it makes sense that’s how it works. I took a screen shots of some key parts in the articles that influenced my thinking. I figure we’ll learn more at the AGM at the latest so it’s not that important except it highlights the abundance of material right tails that are in the portfolio.

Thanks Viking for all of your hard work. It’s very much appreciated. I’m much more optimistic on the total return CAGR. 15% is low end average ROE and with no multiple expansion the stock would return 15% ignoring dividends to make it simple. Given the high level of core earnings I think it’s really hard for ROE to fall below 15%. We know that FFH has high return opportunities for excess capital like buybacks and minority interests in the insurance businesses. The portfolio also has a lot of optionality and I think most would agree a market disclocation is likely over the next four years. That will be an opportunity to accelerate returns. Plus, there are so many insurance (Ki, Digit) and non-insurance (FIH/BIAL, EUROB, TRS) right tails and likely many more that we don’t focus on. Its arguably more likely for ROE to average 20% than 15% over the next 4 years. Maybe 25% is just as possible as 10%. BVPS CAGR is what determines the stock price and buybacks have helped BVPS more than double in 4 years. If it doubles in the next four years again won’t the multiple continue to expand as it has for the past 4 years (albeit unevenly)? If on Jan 1 2029, BVPS is $2200 and the stock price is up 4x, the multiple will be only 2.5x P/B a discount to Intact Financial which trades at ~3x P/B now. I realize that discussing the right tail possibilities is not polite in most value investor company so please be kind when you tell me why I’m wrong and why FFH is too expensive to start a new position.

Not if existing shareholders will be locked up for some time. Plus its Anchorage that is supposed to IPO, not BIAL, directly.