SafetyinNumbers

He’s referring to me. I had a position in Atento that went to zero. I can’t really get into a post mortem as I had signed a lock up agreement that restricts what I can say. That position peaked around 15% of market value and had a cost basis around 8%. Fairfax is about ~20% on cost as I have been adding on the way up. There are no sure things. I make risk adjusted bets and I expect to be wrong about a third of the time. Taking a zero on Atento didn’t change my life (except the pain of course) and taking a zero on FFH wouldn’t either except I will stop talking and writing about stocks publicly if that happens. I share in part because I think I have good ideas. I’m not interested in people losing money because they discovered an idea through me.

It’s a little over 40% for me and my most recent move was an add in early August. My plan is not to sell any until I can forecast forward ROE below 10%. In terms of external catalysts, I don’t see the point of trimming any until the 60 add is announced at least.

I believe them when they say they are looking to buy quality on a dip so not sure the deep value style is an appropriate descriptor anymore.

I would like to get to 2.5x BV and start issuing equity to buy quality businesses at a fair price.

Why interrupt the buybacks and issue cheap stock. Time takes care of everything.

I think the committee like a lot of investors are looking at the FFH chart and are hoping it pulls back and AQN or something like TFII goes up a lot so they don't have to add another financial. The longer it takes the better from a buyback perspective. FFH is on the 4th year in a row with >15% ROE and the PB is still only ~1.2x which I find remarkable but I'm probably in the minority with that view.

Yes, that’s all true. But did you know that when Intact was added in March 2022 it was essentially same weight and rank in the Composite as Fairfax is now and Financials in the 60 were even more overweight then vs where they are now?

I think retail shareholders sell based on price not value. Buying is mostly institutional which is purchased on percentage of volume so they don’t set price, the sellers do.

Does that mean you think FIH gets to a premium to book again? If so, how long will it take?

8 years ago there was no margin of safety but now it’s incredibly high. Price is what you pay, value is what you get (WB).

Congrats on ~7x your portfolio despite the initial positioning. The world changed a lot in 8 years from a market structure perspective and FIH was on the wrong side of that. 8 years ago FIH traded at a premium to book value. Since then, institutions are much less likely to own stocks not in their benchmark and that don’t pass their quant screens. FIH fails on both. Passive investing has grown exponentially in the past 8 years as well. India ETFs get the nod for India exposure and FIH isn’t even in the conversation. Taking out the IPO costs which were one time in nature, the BV has compounded ~10% after fees. If marked at IV, it’s at least a few percentage points higher. That should be an acceptable rate of return but investors can’t sell intrinsic value. The company and the parent have at least bought shares otherwise the discount might be even bigger (more supply after all). It’s a much different investment than it was eight years ago as it trades at a big discount to BV instead of a premium. IV has had time to grow even faster than BV so that gap has widened considerably from 8 years ago improving the margin of safety that much more. FIH is a 4% position for me, not because I expect the discount to close, but because I expect BV growth to accelerate. Because of the big discount, a 33% increase in the BV on the IPO of BIAL, for example, may result in a 50% increase in the share price if the discount remains consistent but of course it might grow. If the discount grows, I expect buybacks will eventually help sop up the extra shares increasing long term returns. I was pretty excited about FIH post the AGM as it seems like they were confident once the Indian election was complete that BIAL had a better chance of approval. If it doesn’t happen in the next 12 months, the opportunity cost of holding FIH over FFH (or some other alternative) was probably too high. Based on the discount, most investors have already reached that conclusion.

What % of the portfolio was it 8 years ago and what % was it when you sold it?

Raise your JACK with JAKK!

Probably similar to my strategy. I have 40%+ position in a $25b company and but still own ~2-5% positions in three <$50m companies. I think they just try to buy stuff at a big discount to intrinsic value. It’s a novel concept. With respect to the first part of the comment on slow growers/bad industries is misguided in my opinion. The high discount rate shows these are fast growers over the forecast period and the valuations are conservative assuming continued depreciation in the rupee (we might actually get appreciation). The terminal growth rate has to be equal to or less than nominal GDP growth otherwise whatever company being model becomes the entire economy over enough time.

I think they love IFC because it screens well on both qualitative and quantitative characteristics. I’m pretty sure that’s all it takes. I think FFH can rerate as shares get bought by the company and eventually the 60 out of investors who think the current multiple is fair. I don’t know if it will ever screen well because of technical (FFH doesn’t report adjusted EPS) and business model reasons (equities can be lumpy).

There is a lot of concern about the volatility of the earnings but even if the stock plunged back to (real time) BV, that’s only a ~$400m or ~$16/sh hit to earnings and it’s temporary. The potential loss also doesn’t seem big enough to cause any stress to the balance sheet. I know investors have a preference for smoothed earnings but FFH will always be lumpy. It also might make a bad quarter worse one of these days but right now when they are growing BV 3-5% a quarter at ~1x fwd BV it just doesn’t seem that risky. If it was just another investment, most investors wouldn’t think twice and it’s small enough they still shouldn’t.

looks like bought back ~65k and cancelled ~61k so far. Great to see especially during hurricane season. It will be interesting how much it steps up in Q4, if the multiple is still down here.

They could also lever ZZZ more when it’s private. If they take that out as a return of capital, it will reduce the equity position size.

Great point GFP. Also, there are lots of equity positions bigger than OXY. The three biggest are EUROB, Poseidon and the TRS. We already know EUROB and Poseidon will contribute more than they did last quarter. The TRS also has gains more than the OXY loss if the quarter closed today.

Apologies if I have offended anyone. I thought the thread was about Semper Augustus.

I’m just going by what’s on the page. His argument is surplus capital can earn higher returns so he’s paying up for that optionality. If you know him personally, please ask, if he actually meant he doesn’t trust Fairfax management.

Bloomstran.

Yes, he thinks the capital surplus can earn a higher return invested in equities which is a reasonable position but wouldn’t it make sense to consider buying the company growing capital surplus the fastest?

I was just referring to the argument on surplus capital without regard to leverage.

This is all he writes and I think it’s a flawed argument but that’s what makes a market.