Viking

Looks like a very smart use of Hellenic Bank’s significant excess capital. Should be lots of synergies and cross selling opportunities. Valuation: “Hellenic Bank would acquire 100% of CNP Cyprus Insurance Holdings for a total consideration of €182m (corresponding to 1.0x CNP CIH book value).” https://www.cnp.fr/en/the-cnp-assurances-group/newsroom/press-releases/2024/cnp-assurances-has-entered-into-exclusive-negotiations-for-the-sale-of-its-subsidiary-cnp-cyprus-insurance-holdings-to-hellenic-bank-public-company

@nwoodman What Sokol said at Fairfax's AGM was, IMHO, one of the most important pieces of new information to come out of the entire event. Poseidon is Fairfax's third largest equity holding (with a value of +$2 billion), after Eurobank and FFH-TRS. Poseidon's performance in 2023 was disappointing (share of profit of associates of $150 million), compared to the guidance Atlas provided in their investor day back in March of 2022. However, it appears performance should improve markedly in 2024 and the coming years. "So the ships we're delivering this year, if you wanted to duplicate them, a, it would take you 2 years, but also you'd pay a 30% premium. So we have a build-in margin that is purely good fortune from our perspective, but nonetheless, you take it when it comes along. So that's where we are. Now that's going to show some pretty dramatic improvement in economics this year. We'll probably see revenues up around 25%, EBITDA north of 35% and net income above 20% growth from '23 through '24, but that's just a function of these ships coming on." David Sokol "...your investment should go up about 50% this year just based on the increased cash flow of the business" David Sokol This is big news. And something to monitor moving forward as Fairfax reports quarterly results. ---------- Below is the guidance Atlas provided in March of 2022.

Interesting take on gold at the 12:26 mark of the interview. Nick says gold is moving higher primarily because the US government has weaponized the US$. He says that sanctions on Russia have taught other countries (like China) that it would be foolish for them to have all their US$ on a ledger in the US or Europe. There are very few assets that can be priced in US$ and stored anywhere (like in your own country). Once the gold is in their country it is safe from sanctions. He said pre-2020, central banks used to buy about 10% of gold. This has doubled - to about 20% today. This is causing higher prices. Nick said central banks slowed down purchases in recent months but the market is now front running the fact that central banks will keep buying gold (at some point). He said central banks have to keep buying (they don’t have a choice) so they will come back at some point. He does not think the recent move in gold is due to concerns about inflation.

@SafetyinNumbers , the short answer is i am not sure. On their calls, WRB typically tries and stay very top line. They are going to make a lot of money over the next 2 years. The analysts want to get into the weeds. So it appears the analysts found some things in the weeds that they don’t like. WRB might have done some reserve strengthening from 2019 and prior years? It appears the total insurance market is softening… yet WRB guided to 10 to 15% growth for 2024 (‘trust us’)? The average duration of the fixed income portfolio is only at 2.5 years?

@dartmonkey here is what was said near the end of the Q1 conference call. I think Rob’s comments at the end of the conversation were meant to be in jest… Brian Meredith Yes, thanks. Hi, good morning. Two questions. Rich, I'm just curious, could you just give us the actual income that you generated from the Argentina inflation bonds in the quarter? Just so I don't have to do the math. Rich Baio Rob, I'm not sure we've then generally given that level of detail. I'm not sure if... Brian Meredith I can back into it with what you said in the yield, but I just wanted to know what the actual number was. Rich Baio Why don't we take it offline? Rob Berkley Yes, Brian, he's just going to check with an attorney and call you back. How about that? Brian Meredith Okay, fair.

WR Berkely reported Q1 results this morning. Results looked good to me. But clearly Mr Market wasn’t happy - the stock is currently down 6%. 2024 is shaping up to be a decent year for the overall insurance market. My guess is we are approaching the tail end of the hard market in the overall P/C insurance market. As a result, i think we see lots of volatility with insurance stocks as they report results. We are also approaching hurricane season, which tends to be a volatile period for P/C insurance stocks. Chubb reports results tomorrow (Wed). Here are some notes from WRB’s conference call: - “the business is firing on all cylinders”; both investments and insurance - “enthusiastic about 2024 and the groundwork laid for 2025” - “better than average chance we can grow top line 10-15% in 2024” ; lots of variability by business line. - top line growth in net premiums written was 10.7% - increase in rate was 7.8%, above loss cost trend in aggregate. - 80% renewal ratio - “record investment income and Q1 underwriting profit” - fixed income book yield = 4.2% (excluding Argentina transaction) and new money rate is currently 5.25% to 5.5%. - “earnings power of business has considerable upside from here” - fixed income duration extended from 2.4 to 2.5 years. - “average life of reserves is just under 4 years” - adverse development from soft market from 2019 and prior years should largely be in rear view mirror. - share buybacks: do not buy back stock blindly; only when they feel it offers good value. They did not buy back any stock in Q1.

Canfor (CFP.TO) at C$14.35. Time to scratch my (monthly?) lumber itch. Market cap is $1.7 billion. Net debt is a positive $300 million (net cash position). So enterprise value is about $1.4 billion. They also have +$900 million of duties on deposit. This is worth something. The stock is selling off aggressively because interest/mortgage rates have moved higher.

@MMM20 It is interesting how everyone views Fairfax’s equity portfolio. Mostly, people seem to view it through the prism of their own investing framework. The reason i like their current equity portfolio so much is more because of a relative perspective: 7 years ago it was stuffed full of underperforming holdings; or holdings with a poor outlook. That is no longer the case (or much less the case). As a result, i expect it to perform much better compared to the portfolio that existed 7 years ago.

@Dinar If Fairfax has performed so poorly on the investment side, how did they compound book value at 18.4% over 38 years? Insurance/underwriting?

@MungerWunger given my visibility on this board and Twitter when it comes to Fairfax, i am hesitant to post on position size. For a whole bunch of reasons. But let me try and answer in a different way. My goal is to get my Fairfax weighting down to 33% of my total portfolio - it is higher than that today. Context is important when discussing weightings. Today, i own no real estate. I do not have a day job. All i have are financial assets. So having even 33% in one stock is probably a dumb idea. Most of my financial assets are held in tax free accounts - so i can move in and out of positions easily with no tax consequences. I also sometimes flex my stock positions up and down to take advantage of volatility. As an example, i doubled my small Canfor position today when the stock fell to C$14.55. I was adding to my Telus and BCE positions 2 weeks ago when they sold off. When these stocks move higher i will likely sell some and reduce my position size. So my position weightings will bounce around depending on volatility. Why 33% for Fairfax? That feels like a reasonable position size given its prospects today (which i like a lot). But i remain open minded. Importantly, I might change my mind tomorrow. If Fairfax starts to allocate capital in a way that i do not like i might shrink my allocation. Or when i get to 33% i might decide that my weighting is still too high (i use my gut to help me with position size - so i won’t know until i get there). Or i might decide my weighting is too low. Perhaps something else happens (my health? … knock on wood) that causes me to want to reduce my position size. Perhaps another investment i understand really well gets even cheaper than Fairfax and i decide to shift some funds. One more example: In Q1 2020 when Covid was coming (and before equity markets crashed), i moved 100% of my portfolio to cash. Bottom line: lots of variables are at play that determine position size for me - for all my holdings. The important thing is people need to do find an investment strategy that fits their personal situation and how they are wired. Position size of any one holding is part of this. And concentration is usually a terrible idea for most investors. ————— Broad based index funds are now 30% of my portfolio (XIC, VO and VOO - 1/3 in each). I am really enjoying this 2H 2023 decision. My goal is to get my index fund weightings to over 50% over the next year or two. I want to get a big chunk of my portfolio into ‘set and forget’ mode. As i get older i am shifting from ‘build wealth’ to ‘preserve wealth’. Index funds today seem like a good option. Getting started with index funds also seems to make sense from an estate planning perspective (my spouse is not a financial person). And i have suggested to my kids that they invest exclusively through index funds (when i am not around to help them out).

@petec perhaps were you and i differ: i agree with you that rising interest rates was a big opportunity for Fairfax. But opportunity means nothing without proper execution. And the execution at Fairfax has been excellent. And as a result we now have $2 billion a year of interest income. I think it is incredibly difficult to do what Fairfax did with their fixed income portfolio over the past 3 years. 1.) they took the average duration down to 1.2 years in Q4 2021. Sold a bunch of corporate bonds at a yield of 1%. 2.) they were then super disciplined as interest rates started to rise - they waited all through 2022. It wasn’t until Q1 2023 that they started to meaningfully extended the average duration (to 2.5 years). And having the discipline to wait until Q4 to get really aggressive extending duration (to 3 years) was, in hindsight, sheer brilliance. I remember when everyone thought the 10 year US Treasury yield would peak at 3%. The fact the fixed income team did not meaningfully extend duration earlier and at much lower yields is amazing.

What do people on the board feel are the biggest risks when investing in Fairfax today? Let’s spend some time discussing/debating these as a group - it is important that we live in the real world. So please post your thoughts. When I was at Fairfax’s AGM a number of people I talked to identified interest rates/lower bond yields as a big risk. So let’s start here. Fairfax risk: “What if interest rates/bond yields are much lower in 4 or 5 years time. Causing interest income to fall precipitously?” Interest rates/lower bond yields were a watch out for me at Fairfax when the average duration of the fixed income portfolio was 1.6 years at the end of 2022. But in Q1 2023 we learned Fairfax had pushed this out to 2.5 years. And in Q4 2023 we learned Fairfax had pushed it out again, this time to about 3 years. Fairfax has locked in interest income of about $2 billion for each of the next 3 to 4 years. Significantly extending duration is a big deal. So ‘much lower’ interest rates/bond yields, if that happens, is really a potential problem looking out 4 or 5 years. Predicting macro Trying to predict macro looking out 1 year is pretty tough… buy trying to predict macro looking out 4 or 5 years? Good luck with that. I think we will see persistently higher inflation in the coming years. Perhaps an average of around 3% to 3.5% per year. As a result, i think Fairfax will be given lots of opportunities in the coming years to keep the average duration of their fixed income portfolio at around 3 years if that is what they want to do. Just like what we are seeing today (mid-April), where bond yields have spiked and Fairfax is being given a nice opportunity to extend duration if they want. Alignment When investing in Fairfax over the last 2 decades, i find it is helpful to be aligned with the positioning of their investment portfolio (it allows that ‘sleep well at night’ thing). From around 2011 to 2018 i did not like how Fairfax was positioned with their investment portfolio so i did not own the stock. Today? I like how Fairfax is positioned with their investment portfolio; it is a good fit for me. Given i think it likely that inflation remains higher than expected in the coming years: Fixed income: I like that they have extended the average duration to 3 years. And i am comfortable they will be able to reinvest at an acceptable rate in the coming years. Equities: I like the exposure to commodities and industrials. I think paying attention to macro is useful mostly at inflection points. The rest of the time, it is probably best to just ignore it.

@petec I really appreciate the opportunity to discuss/debate Fairfax. One of the keys to valuing Fairfax today is your assessment of two things: 1.) How good is their insurance business? - Is it average or above average (compared to peers)? 2.) How good is their investment team at Hamblin Watsa? - Is it average or above average (compared to peers)? Here is my quick assessment: I think the insurance business is above average (compared to peers). Not best-in-class yet but definitely better than average. Importantly it appears to be improving in quality; trend is important when looking forward. I think their investment team (at Hamblin Watsa) is best-in-class (compared to peers). Especially in a high interest rate environment (versus a zero interest rate environment) with lots of volatility in financial markets. This is important because Fairfax generates about 80% of their income streams from investments and only 20% from insurance underwriting. (I think most insurers are about 55-60% from investments and 40-45% from insurance underwriting - don't quote me on this split). Fairfax is currently earnings about 7.5% on its investment portfolio and this is significantly more than P/C insurance peers. This outperformance will likely continue for the next couple of years (one reason being the average duration of the fixed income portfolio has been extended to about 3 years). There is a very good chance Fairfax's average ROE over the next three years will be 15% or higher (it could easily be in the high teens). Fairfax has been the best performing P/C insurance company over the past 5 years (in terms of BV growth). It also has the best prospects looking out three years (given its significant leverage to investments and their current positioning). And it is by far the cheapest today. It is within this context that I think Fairfax trading today at a P/BV = 1.1 is crazy cheap. Especially when compared to P/C insurance peers today. Most trade at a P/BV of 1.4 x or higher. The set-up today at Fairfax looks an awful lot like a much younger Berkshire Hathaway. In that context I think a P/BV multiple of 1.1 x is nuts.

@petec great comment. Lots of interesting ideas to discuss/debate. “Personal view but I think the board has a good handle on the facts, but the psychology has swung about 70% of the way from focussing on the bad to focussing on the good.” I agree that the psychology of people on the board has shifted. My view is the shift has happened because execution, fundamentals and results have been steadily improving at Fairfax. Most of the discussions on the board are focussed on what has been happening at Fairfax - the facts. Fairfax has been executing exceptionally well. The fundamentals keep getting better every year. Reported results have been excellent. As a result most of the posts in recent years have had a positive spin. Now i don’t expect this to continue forever. I do expect at some point the Disney movie called ‘Fairfax Financial’ will end - and Fairfax will become a regular boring company. And the posts on the board will reflect that reality and become a little more balanced. I am trying to find the bad. But it is really hard right now. Yes, that is a bizarre statement to make. Especially when it comes to Fairfax. But today, the important tailwinds greatly outnumber the important headwinds. Still. Importantly, i am not going to make bad stuff up. So i can tick the ‘bad stuff’ box in my analysis of the company. When you make stuff up (both good and bad) it gets into your head. And likely warps your valuation of the company - and position size. Making stuff up is dangerous - i know this from personal experience. Following Fairfax right now is like watching Michael Jordan in his prime. Now back in the day, when watching Jordan play, i could have tried to find a bunch of things that he was doing poorly. Would that have been helpful? I have two questions: 1.) If investors understand the facts so well today why does Fairfax trade at a P/BV of 1.1 x (ext. March 31 book value) and a PE of 6.7 x (est 2024 earnings)? For the past 3 years, Fairfax has been playing like Michael Jordan in his prime. But Fairfax’s stock is being valued today like they are a bench player. That makes no sense. 2.) If investors understand the facts so well why are so many people thinking/discussing selling down their position? Now i do understand that people only buy a stock for one reason - they think it’s going to go up in price. And yes, people sell a stock for a multitude of reasons: It is fully valued They find another stock they like more (offers better value) They are way overweight Tax reasons Need the cash Take profits - “That suckers gone up a lot” But i think a lot of people are thinking about selling just because the stock has gone up a lot. Their mental process has less to do with facts and more to do with fear/greed/psychology. —————- Now i do have a long list of risks for Fairfax that i am monitoring/managing. I have discussed many of these risks over the past 3 years. My biggest risk owning Fairfax today is my concentrated position. But that risk has much more to do with me than it does with Fairfax. This post is long enough already. Let’s leave the discussion of risks to another day.

@LC This is a great question. Your answer will depend of your assessment of three things: 1.) what Fairfax has accomplished over the past year 2.) what the company is worth today 3.) how the company should be valued. Fairfax earned $189/share in 2023. My view is intrinsic value went up by more than that. The earnings visibility of Fairfax has improved markedly (with extending the duration of the fixed income portfolio). I think the quality of the company is better today than it was a year ago - we had another 12 months to grade management. One of the reasons i go to the AGM i get the opportunity to talk to really smart investors. Most people i talked to said they felt Fairfax was probably worth about 1.5x book value. This is a higher multiple than last year. ————— “is Fairfax as easy of a “buy” today, versus 6, 12, 24 months ago?” That depends on whether or not you view Fairfax as a higher quality company today than what you thought a year ago (use whatever time-frame you want here). And whether it deserves a higher multiple than you thought a year ago. Fairfax trades today at a P/BV of about 1.1 (to my estimated March 31 BV) and a PE of 6.6 x (my estimated 2023 earnings of $160). Is it cheap? Yup.