SafetyinNumbers

I think most investors including analysts are focused on the downside so they attribute little or no returns to the equity portfolio. Since the stock is so cheap there is no reason to include realistic estimates. It will be interesting if we see that change as they continue to beat estimates and if the stock begins to rerate. The same might hold true for some of the equity holdings. No earnings growth is expected from Eurobank despite really strong momentum. They like Fairfax will have a lot of excess capital to reinvest after dividends. At 5x earnings analysts don't have a reason to be optimistic here either. My theory is that both stocks will rerate faster once earnings estimates start going up because that's what quants focus on and most active capital is tied to quant screens in one way or another. For Fairfax, that can't' happen unless analysts start building in higher returns from the equity portfolio. Most won't bother until the market forces them to. Maybe that's starting to happen.

Where are you trading AMC debt? I haven’t delved into US paper. Was seriously considering some GNW floaters a few years ago but just owned the common instead. If you look at ECN.DB.B or DRT.DB.A, please let me know what you think.

There are two more interviews here worth listening to as well: https://www.marvalcapital.com/interviews Francis Chou also brought Ben by the Ben Graham Dinner last year and gave us a chance to ask questions. I liked his answers.

This is definitely not a cash replacement strategy. The decline in interest rates is helpful in that it makes it easier to do a refinancing or sell businesses. It's much more akin to an event-driven expected value. Generally super illiquid and decently high risk of bankruptcy which usually doesn't mean a zero but very well could. I made 5x on bankruptcy of Twin Butte bankruptcy and took a zero recently on AH bonds so the range of outcomes is wide. A good strategy for probabilistic investors, terrible for deterministic investors. It's a pond that almost no one is swimming which can mean easily mispriced securities. Too high and too low so I tend to keep positions small but occasionally there is a fat pitch. Value traps can be frustrating but at least with these there is a maturity date. Unfortunately, corporates often try to screw over the debenture holders and because they are small issues without many institutions involved, they often get away with it. That's why it's nice to find aligned incentives and maybe get big enough one day to fight back.

Do you know Ben and thus have an informed opinion? I don’t know him personally but he seems like a very competent, thoughtful investor and he literally grew up in the culture. I’m not sure there is anyone more qualified to be Chairman after Prem.

Impossible for me to say but it's not something I worry about.

I guess there isn’t much interest. Two special sits I find interesting are ECN.DB.B and DRT.DB.A. Both haven’t rallied despite big equity injections relative to the EV. With ECN, it seems like they want to sell the business given the strategic process last year. The conference call was pretty clear they will sell or spin the RV/Marine business in short order. That should allow them to sell the remaining Triad business which should trigger a change of control which has very favourable terms for ECN.DB.B holders. $DRT.DB.A just closed a rights issue today. One of the parties backstopping the rights issue also owns a lot of debentures so it seems like this transaction improves the odds of repayment significantly. I like the less risky 38.5% YTM post the rights issue.

There sure are a lot of catalysts. Also, it seems like a bid for IDBI Bank would be a merger or takeover by CSB Bank which is already a big position. I’m really curious what that would look like given the size differential. I’m hopeful, FFH also finds away to use its performance fee to buy shares in FIH. That would help the narrative too!

I think his son, Ben, would become Chairman. Not sure about CEO. Maybe Peter Clarke?

https://divestor.com Has been kind enough to provide the below Google sheet that has most of the listed debt included. https://docs.google.com/spreadsheets/d/1ZWLueyQ13lw8oy0Pi5z4OYcRIHNSwM0XlTsAfBBz5c4/edit

Is there a community here interested in discussing Canadian exchange traded debt? I’m mostly interested in the special situations but it’s seem like an inefficient market over time. I have had some success historically.

I prefer FFH keeps using the TRS vs buybacks for the enhanced financial flexibility and because it doesn’t shrink the market cap. The larger the market cap, the more likely we have a replay of the 95-98 period and get a more reasonable P/B multiple. Being added to the S&P/TSX 60 seems like a real possibility if FM and/or AQN get removed in the short term which could be a trigger. FFH’s weight is just going to go higher over time so entry into the 60 seems inevitable even if it takes a few years.

Either a typo by me or I misread it. Apologies for the confusion.

Starting this up so we don’t have a new topic for every press release like this morning’s 50% increase in the dividend.

I think the bigger FFH gets in the S&P/TSX Composite (65bp to 91bp last year), the higher the multiple will go as index huggers continue their chase. Once, the multiple starts going up, analysts might start increasing earnings estimates enough to show growth, which will allow quants to buy expanding the multiple even more. We could also get a bigger surprise like FFH being added to the S&P/TSX 60 to replace tiny components like FM or AQN but given it’s a financial, that could take longer.

Thanks for putting up the poll. Interesting results! I wonder where the group would place the odds of touching US$2000 by the end of 2027 and how that would relate to the result of the poll.

Great analysis as usual Viking! Thank you! FWIW, FIH calculates their CAGR to Sept 30, 2023 on BIAL to be 12.8%.

In the most inefficient market I have ever seen, I think an unconstrained investor like FFH has the potential to generate strong absolute returns over a long period of time. It’s what gets me really excited about the right tail. If you want a holdco that owns the index (VOO) and has money invested with the GARP investment style (UNC.TO EVT.TO), you should consider E-L Financial. It trades at a ~50% discount NAV despite its holdings being closer to what most investors prefer i.e. passive or quality.

It’s hard to argue it’s a big love in when the multiple is 1x BV and IFC and TSU trade closer to 2.5x BV. I appreciate it’s because their earnings have less variability and estimates show consistent growth which quants like. It doesn’t mean they will create more value over the next 5 years and certainly doesn’t guarantee they have better stock performance although anything is possible. I think a lot of FFH investors are scarred from the last decade and are very afraid of drawdowns. There is no consideration for what could go right despite a very strong set up. I think it’s greater than 50-50 odds that ROE is north of 15% for the next 3 years based on the current balance sheet. It could be materially north or it could be lower but ultimately I think the odds of a 20% ROE are higher than a 10% ROE over the next 3 years and thankfully my hurdle is 10% so I’m still happy to own it even if my lofty expectations aren’t met.

I think dilution would have been ~1.5% depending on how big the performance fee will end up. I think it’s also fair to say the market was expecting the shares to be issued. Both good reasons for the shares to benefit on Monday at least in the short term. A lot of investors didn’t want to own the shares because of this clause. Despite it not having a material impact on investors since inception, the perspective was understandable. It will be interesting if they reconsider. That pool of investors might be big enough to close the discount materially. That’s how the shares benefit in the long term. This move by Fairfax might generate a lot of Social Value or in FIH’s case, reduce the negative Social Value as Market Value is well below Intrinsic Value. it’s hard to predict what will happen with NAV discounts but the narrative just got easier to sell. The stock is at new 52-week highs and there is nothing macro guys like more than strong technicals and a country bet. India is flexing its strategic importance to every super power in the world. India and Indians own a lot of gold so there is some optionality that the rupee will benefit materially if gold rallies materially. Indian debt is going into the benchmark next year which should lower the cost of capital and also provide another reason for the rupee to strengthen. Oil is cheap and they buy it even cheaper. 2024 brings a few potential meaningful catalysts. The biggest being the IPO of Anchorage which has been taking forever. I assume part of what led to the sale of the additional 10% of BIAL to FIH were the other counterparties was not wanting to wait for a longer process and FIH willing to pay a fair price. CSB Bank is reported to be bidding for a partially state-owned bank that is much bigger. I’m not sure what kind of deal structure is possible but it seems like it could have a lot of upside. CSB is up 64% this year and according to the internet has a P/E of 12. They own a lot of interesting businesses. The public stocks are going up and my bet is the private ones are marked conservatively as a group. I think the l/s hedge funds I sold too in 2003 would have been all over this story but they are all gone and there are too many ideas for those of us that are left. The discount might go back to 40% but book value could still grow pretty fast depending on how the world turns out. i’m going to trade around a core position which probably means I’ll sell too much too early and I’m elated with that outcome vs the alternative where BVPS doesn’t CAGR north of 10% which is always possible but I think unlikely. You may think otherwise.

That seems to be the case. I don’t think it impacts the ~43% ownership because these shares were included in the proxy. Does anyone disagree? On a side note, it looks like the FIH AGM is the day before the FFH meeting at the Ritz. Anyone have an idea why?

sold a piece to establish Anchorage and get an arms length valuation. They announced this purchase quite a while ago. It’s just closing now.

I assume the insurance companies benefit with ratings agencies and clients by having excess capital sit at the subsidiaries. What do you see as the benefit of having cash at the holdco instead besides Social Value?

if I understand the IFRS reg correctly, book value would go up by about ~$48m with the balance credited to NCI. Does that look right?

Nice timing with the dip in rates. Also it looks like the spread came in about 65bps vs the 10-yr note it’s replacing.