Viking

Have you tried FFXDF (OTC)? It is very thinly traded. My issues is i would like to buy on the Canadian side (FIH.U) in a Can$ account but it is traded on the TSX as a US$ stock. So to avoid currency charges i have to buy in my US$ account which it picks up as FFXDF. Not sure why the company listed the stock on the TSX as a US$ stock.

if you compare BIAL with other publiclty traded airports around the world , it still seems quite a bit undervalued even more so with a second terminal coming up soon. Absolutely agree. That is, in part, why I was a buyer at $13, and $12, and $11. All I'm saying is this transaction is just an accounting entry - it's the same BIAL it was 2-days ago, but the shares are 10% higher and Fairfax can now charge fees again as this pushes NAV substantially higher. I get why Fairfax did it. I just don't understand why this would pop the stock or why the people buying it today weren't aware of the value of BIAL two days ago. For me, a better question is why investors sold the stock so low. At September 30, 2019 common shareholders' equity was $2,064.7 million, or book value per share of $13.53 (us). Add to that the $3.30 (us) for the current revaluation and we have book value $16.83 (us). So, if it's the same BIAL as it's always been, then the low was ~ 65% of book. With clarity on the financials coming, I think a retracement towards book value is in the cards. I'm not scratching my head as the stock recovers back up, I was scratching my head on the way down. The stock is on sale again :-) trading today at under $12.50. With the second terminal at BIAL scheduled to open next year there is more near term upside for that asset to continue to grow much more in value. Given the disconnect in where the stock is trading ($12.50) and likely reported Q4 book value ($16.50 to $17.00) it will be interesting to see how Fairfax India (and Fairfax) responds. I see in the past Fairfax India has bought back stock; perhaps they get more aggressive and use some of the proceeds from recent transactions to buy back a big chunk of stock. Or perhaps Fairfax increases its stake?

The CEO of WR Berkley has the (insurance) quote of the year already. WRB posted results today; i find they have been a good source of information as to what is happening in the insurance market. Yes they can be promotional; but they are usually pretty accurate. When beginning his prepared remarks the CEO simply said “it is happening, ex workers comp”. https://ir.berkley.com/home/default.aspx (scroll down for webcast) An insurance hard market is very good news for Fairfax. While this likely means we will not see meaningful share buybacks we should see solid top line growth in 2020. And as this progresses hopefully an improving CR. If their reserving hangs in there we should see solid results in Q4 (as investments did very well in Q4). We will find out in mid Feb when they report :-) Here are a few notes from the WRB call. - hard market being driven by three factors: low interest rates, increased frequency of cat activity and social inflation. Not just being talked about; now being acted upon. Very visible in Q4. Not slowing down. - seeing acceleration in the top line - all lines, ex workers comp, are increasing - average increase on rate is 9% (ex workers comp) - focus has been rate; shifting to count - pricing new business 4.2% higher than renewal (not buying new business) - renewal retention is about 80% (customers are not moving in spite of rate increases) - reserve releases are shrinking (still positive but just) - investment income is lumpy - will see elevated spending on technology (systems, data, analytics) which will hit expenses a little Question: “margin expansion - are we there yet?” Answer: “2H ‘20 should see earned premium accelerate. Price increases are a couple hundred basis points in excess of loss trend estimates” Question: “how long will it last?” Answer: “lots more pain to come (those who have been underpricing); don’t see it slowing; see it accelerating” Question: “when will shareholders see the benefit? Will it be higher CR (soon) or positive reserve development (years later) Answer: “as year comes in should see better CR”

Here is some new news on Farmers Edge, one of Fairfax’s private investments. Farmers Edge and Fairfax Brasil Partner to Bring Data-Driven Crop Insurance to Growers in Brazil - https://business.financialpost.com/pmn/press-releases-pmn/business-wire-news-releases-pmn/farmers-edge-and-fairfax-brasil-partner-to-bring-data-driven-crop-insurance-to-growers-in-brazil Here is the summary on the company provided by Fairfax in their 2018 annual report. “Farmers Edge. Farmers Edge was founded in 2005 by Wade Barnes in Winnipeg, Manitoba as a project-based consulting company providing value added agronomy services for large scale farmers. The business has since evolved into one of the leading SaaS (software as a service) farm management platforms with 24 million acres under management as of December 2018, with an anticipated increase to 40 million acres by the end of 2019. Key services offered under the Farmers Edge platform include: 1) One of the highest density of weather stations in North America. Farmers can have alerts sent to their phones, even at 4am, if there is to be frost on one of their farms. Important, as there is only one harvest! 2) Daily satellite imagery to track crop health via tablet, phone or PC. 3) Brand-agnostic telematics enabling passive data collection. 4) Soil sampling and variable rate fertilizer application, which allows farms to increase yields with less overall fertilizer application. Four-year customer contracts provide Farmers Edge with predictable recurring revenue and cash flows. Fairfax made a $95 million equity investment in March 2017 and has since provided additional funding of $64 million in the form of debentures plus warrants, based on an implied valuation of 4x projected December 2019 base business EBITDA.”

Xerxes, of Fairfax’s current staple of larger investments it looks to me like Recipe may be in the most difficult situation. Their issues is not Recipe specific; restaurant stocks in Canada are really in a tough position. Here in Vancouver they are being hit with the perfect storm: 1.) big increase in property taxes by the city (8%) 2.) big increases in minimum wage of 6-7% every year for the last 3 years straight (with more big increases already confirmed by the Provincial government) 3.) shift with consumers from eating in restaurant to eating at home (with Skip the Dishes, Uber Eats who take as much as 25% of the order value etc) 4.) steady increase in health care costs What you see across the board is restaurants are unable to increase revenue / cut costs fast enough to offset all the cost increases. 2020 will likely be another tough year for restaurant stocks. The good news for Recipe is the stock has already sold off pretty aggressively in 2019. The question is if we have seen the bottom in profitability or if more bad news is coming in 2020. At some point the sector will be a buy... not sure if we are there yet.

Gary, for Q4 my guess is we will see company wide underwriting come in at 97% CR. Interest and dividend income will be around $215 million. As i indicated above, mark to market gains on equities should be around $160 million. Interest expense will be about $130 million. When i put it all together my guess is BV in q4 should increase $10-$15/share. I try not to get too cute with these estimates; bottom line, i expect Fairfax to post solid earnings and BV growth in Q4. We need a few more quarters like this to get investors interested to get back on the FFH train :-) My range is quite large because Fairfax and its equity holdings have been very active making moves in Q4 and i am not sure when all of these items will be reflected in FFH financials and how each transaction will ultimately impact BV. For example, what i do not understand well is how Fairfax accounts for each of its ‘associates and consolidated’ holdings: - Seaspan has had quite a run in Q4; will this gain be reflected in BV? If so, how much? (Is it valued at stock price? If so, why is Quess equity accounted?) - Fairfax India announced two transactions late in Q4 that will increase its BV by about $3 per share; how will this flow though to FFH and timing? - Quess is carried at a much higher value on the books than its current share price; will we see Fairfax adjust this down? Same with Recipe. - will the APR transaction be reflected in Q4 results in some way even though it will not close until Q1 2020 - what is value of Digit; will Fairfax show it at a higher value? Other: - will the Riverstone UK transaction be reflected in Q4 results in some way (higher book value) even though it will not close until Q1 2020. This transaction alone will increase BV by $10 per share. PS: when FFH made their final sale of ICICI Lombard it did not close until Oct but i am pretty sure they booked the gain in Q3 results. This is an example of why i am not sure on the exact timing of when the various announced transactions will be reflected in results :-)

Bluedeveil, thanks for posting on Digit; interesting to learn about another seed investment Fairfax made and how it is blossoming (years later). I have updated my list of Fairfax's various investments. I track this only to understand what is going on 'under the hood' quarter to quarter. It is not precise; but it is a good directional tool. It is interesting to see the wide geographic diversity of the top 10 holdings. Please let me know if you see any errors or if you have an update on a business Farifax holds :-) So what has happened with Fairfax's various equity investments in Q4? Total equity portfolio looks like it is up about 7% which if accurate would be very good. Back on Nov 6 it was tracking to be flat. - mark to market equities = + 6.8% - associates and consolidated = + 9.3%; there are likely errors in here as the Quess deconsolidation from Thomas Cook happened in Q4 and i am not sure if I got everything correct. I also included APR Energy and debentures for Seaspan (as I want to know what is going on with all the various holdings). Top holdings as of Dec 31 (US$) 1.) Eurobank (Greece) = $1,255 million 2.) Seaspan (US) = $1,096 - APR will add $381 million in Q1; warrants (if exercised) = $355 - add all three together and Seaspan is about $1.8 billion! 3.) Fairfax India = $660 4.) Recipe (Canada) = $404 5.) CIB (Egypt) = $395 6.) Blackberry (Canada) = $300 - FFH also has warrants which, if exercised, would double its position 7.) Kennedy Wilson (US) = $297 8.) Quess (India) = $324 9.) Thomas Cook India = $222 10.) Fairfax Africa = $208 The key takeaway, from my perspective, is Fairfax’s largest equity holdings look to have made pretty good decisions in 2019 and most look well positioned as we begin 2020. Fairfax_Equity_Holdings.xlsx

Agreed. I loved watching the show when Louis was around. Great introduction to investing.

My favourite business news show right now is Bloomberg Surveillance with Tom Keene. I record it on my PVR and fast forward lots. He sometimes has some very good guests on.

Fairfax; reasonable risk/return bet. Growing BV should also lead to higher multiple. I am looking for a 10-15% return in 2020. 1.) Trading at about 1 X BV (not expensive) when compared to other insurers. BV should increase nicely in Q4 (underwriting and good equity markets) and recently announced UK Riverstone divestiture will add another $10 to BV in Q1 2020. 2.) Insurance pricing is firming: should continue to grow written premiums at double digit levels in 2020 3.) Bond portfolio is positioned at short end of curve; will benefit if rates in US continue to rise 4.) Equity portfolio looks reasonably valued; will benefit if we get a risk-on in equity markets in Q1 (especially Indian holdings and perhaps Greece/Eurolife). 5.) Sentiment in company is likely at all time low. However, execution in 2019 was very good. More of this should see sentiment start to slowly improve (resulting in higher PE multiple). 6.) Near term catalyst: will pay US$10/share dividend in January This article sums FFH as an investment pretty well (hat tip Wisowis): https://www.woodlockhousefamilycapital.com/post/the-horse-story "(FFH can reach 10% by following a number of roads. For example, one road requires a ~95% combined ratio and ~5% return on its portfolio. That seems do-able.) Anyway, a consistent 10% would grow book value at a decent clip and then you’d likely get an additional lift from the valuation even if the stock moved just to 1.2x book. As RayJay reports, a comparable set of North American insurers with an 11% ROE trades for 1.7x book value per share."

9.4% (about 12% ex currency as the CAN$ appreciated versus US$). Very happy with return as I had very high cash balances for much of the year :-)

Fairfax has had a very active 2019. For fun, i decided to try and come up with a 2019 Top 10 list of events driving value for shareholders. Some events were driven by Fairfax (corporate/subs) and some were driven by management teams in the stock/equities held. The breadth of the items below is very interesting and informative. On balance, it is clear to me that Fairfax, on balance, has done many things to build a more valuable company for shareholders over the past year. Please feel free to comment; what items are missing? One obvious bucket is ‘Share of profits of associates’ and how fast it is growing. Here is a summary of the types of items impacting shareholder value: - being positioned to capitalize at subs on hard market in insurance - solid growth in interest and dividend income - seeding new/newer investments: Seaspan (tranche 2) - monetizing mature investments: ICICI Lombard sale and sale of 40% of Riverstone UK. - merging investments to make the whole stronger: Eurobank/Grivalia - selling investment to put it in a better position to thrive: APR Energy - simplifying corporate structure to better enable companies to succeed: Thomas Cook demerger of Quess and IIFL split into Finance, Securities and Wealth Top 10 Events Driving Shareholder Value During 2019 1.) Ongoing: emergence of hard market for pricing in certain insurance lines: leading to double digit growth in net premiums written at many of the subs. Looks like double digit growth should continue in 2020. 2.) Ongoing: Solid increase in interest and dividend income: while short of FFH goal of $1 billion, looks to be close to $900 million for 2019, versus $784 in 2018 and $559 in 2017. - January: Seaspan: tranche 2 of $250 million at 5.5% = $14 million in interest income/year 3.) January: Seaspan: Fairfax’s additional $250 million investment = 37 million shares purchased at cost of $6.75; with shares currently trading at $14.25 paper gain = $278 million. - 25 million additional warrants exercisable at $8.10 = paper gain of $154 million 4.) Eurobank: stock closed at $0.54 Euro on Dec 31, 2018. Today the stock is at 0.92 Euro; paper gain = US $400 million. Eurobank looks well positioned. a.) April: merger with Grivalia improved balance sheet b.) April: Cairo Securitization - plan to hive off 7.5 billion euro chunk of underperforming assets is now almost complete (target Q1 2020). c.) July: election of pro business government in Greece with clear majority in parliament. Lowered corporate tax rate; approved Hercules (vehicle for banks to reduce non-performing assets. - see b). 5.) Sept/Oct: ICICI Lombard sales: of remaining 10% position for proceeds of US $729 million; recorded a net gain on investments of $240 million in 2019 (there was more in previous years). 6.) December: OMERS paid US$560 million for 40% of Riverstone UK, which gives it a total value of $1.4 billion. Will increase BV by $10/share. 7.) Fairfax India: book value is up significantly in 2019 (+$3/share). BIAL looks like a jewel of an investment that will grow double digits for years to come. a.) Dec 16: Bangalore International Airport (BIAL): Fairfax India to sell an 11.5% interest in Anchorage Infrastructure (holds airport investments) for gross proceeds of 9.5 billion Indian rupees ($134-million at current exchange rates). Fairfax India’s ownership of BIAL will fall from 54% to 49%. As a result of the transaction, Fairfax India will record investment gains of approximately $506 million, an increase in book value per share of $3.30 per share. The investment gains are supported by positive operational developments at BIAL. For the 12-month period ending October 2019, total traffic at BIAL was approximately 33.7 million passengers. The second runway commenced operations in December 2019. The expansion project for a second terminal at BIAL is expected to be completed in 2021. b.) Dec 23: Sanmar Chemicals Group: completed its previously announced transaction with Fairfax India. During the period since announcing the transaction in the third quarter of 2018 through September 30, 2019, Fairfax India recorded investment gains from the Sanmar common shares and bonds of approximately $210 million and $100 million, respectively. 8.) November: Sale of APR Energy to Seaspan: moved an underperforming unit into a better situation; obtained Seaspan shares is return. - APR Energy: US $300 mill / $11.10 per share = 27 million shares - $14 (share price today) - $11.10 (cost) = $2.90 x 27 million shares = $78 million paper gain Under-performers: 9.) Recipe. Shares fell from CAN $26.19 to about $19.50 = $180 million paper loss. Hard to see this turning any time soon. Restaurant stocks in Canada have been crushed this year. Most provinces are increasing minimum wages aggressively and will be doing so in the coming years as well, which is a severe negative for the hospitality industry. It appears all the home delivery options available are negatively impacting revenue. The good news is the assets are quality and have value; at $19.50 they look cheap. 10.) Blackberry: shares fell from US $11.17 to about $6.50 = $220 million paper loss (double if you include convertible shares they own). The purchase of Cylance has not resulted in the growth expected. Most recent quarter results were ok. If they can get the Cylance unit growing the shares will do very well. 2020 will be very interesting to watch. 11.) Resolute Forest Products: shares fell from US $7.93 to about $4 = $120 million loss of papar. Dec: purchased 3 sawmills in US South for $150 million; should new home construction in US pick up in 2020 this could become a solid aquisition for RFP. Not sure what to think 12.) AGT take private More work needed (by me to understand the businesses): 13.) Indian Investment: Quess, Thomas Cook, IIFL Finance - Securities - Wealth - there was a lot of noise with these investments in 2019. Thomas Cook demerged its Quest stake and IIFL split into 3. This made it difficult to follow. The good news is these 5 firms are now independent with easy to understand share structures; we know how much Fairfax owns of each. And it will be much easier to monitor and understand what is happening moving forward. Quess: Amazon investment suggests Quess is undervalued. Quess also looks like a real jewel of an investment set to grow at double digits for many years to come. a.) July Amazon invested US$ 7.43 million for a 0.51% stake in Quess ($ went to fund growth of Qdigit unit); they paid INR 676/share and market price at the time was INR 430 (they paid a 50% premium). b.) December: Thomas Cook India demerged their 50% holding in Quess Corp in order to simplify the corporate structure.

Great decision buying AMD. It continues to surprise me how some (only a few) companies can re-invent themselves. My son (who is in grade 12) alerted me about 2 years ago to what was going on at AMD; he and his buddies are into technology and he explained to me that AMD was a company on the rise. Alas, i was too busy thumb sucking to do anything about it. I use it as an example with him to how small investors can do well if they do what Peter Lynch advises: take advantage of what you see in your circle of competence.

Thanks. The price history at close for past 5 years that you shared, suggests if one was holding since Dec 2014, annual return has been about 2%/yr (from dividends) in generally a bull market. Wow! Will take a substantial run up in price to justify for those of us who have held. Looking in the rear view mirror is important. Why has the stock price gone sideways for 5 years? 1.) what errors were made? 2.) has the company learned the lessons? The much more important number for me is $608.19 (Dec 24 stock price). 3.) What will the company do moving forward? The shares currently trade below book value (cheap compared to other insurance companies). - Their insurance businesses are performing well and look to be in a hardening market; this is a big positive. - their bond portfolio is positioned well (short end of curve) should rates continue to move higher - their equity portfolio looks well positioned as we enter 2020 should we see economic growth continue to chug along And sentiment towards the company is terrible. This is not to suggest the company is perfect; it is not. I think the company has learned some valuable lessons. However, on balance, i like the decisions the company has made the past 2 years. More importantly, the company (and its equity holdings) is doing lots of things to drive shareholder value in 2020 and beyond. Q4 results should be solid. I like the risk reward at current prices.

Merry Christmas to all board members. Hope everyone has a successful and prosperous 2020 :-)

When you look at Fairfax over the past year they have been very busy (and many of their equity holdings havealso been very busy). In aggreggate it is clear that the company is worth more today than it was 12 months ago. I think Faifax is better positioned today than at any time in the past 7-8 years to grow BV. As they continue to execute we will get growth in BV and a higher PE multiple which will be very nice for shareholders. It is also interesting to look at Fairfax’s year end closing share price (from 2018 AR): 2014 = $608.78 CAD 2015 = $656.91 2016 = $648.50 2017 = $669.34 2018 = $600.98 2019 = $608.19 (Dec 24)

You're assuming the proceeds go to FFH and aren't a capital increase at RSUK. I suspect you're right but the release isn't totally clear. If so, the proceeds are to support premium growth - the release does seem to indicate that. My guess is FFH is pretty motivated to do all three (take out minority partners, support premium growth and buy back stock). I expect we will see more transactions in the next year or two that position them to execute on all three objectives.

OMERS paid US$560 million for 40% of Riverstone UK, which gives it a total value of $1.4 billion. If we did a sum of the parts valuation for Fairfax before this transaction my guess is no one would have said Riverstone UK was worth anything close to this much. It is encouraging that a business as hairy as this is worth $1.4 billion. And i applaud Fairfax for surfacing value in a most unexpected way. This is one of the strengths of Fairfax: they can be very creative. Benefits of this transaction: - Proceeds of $560 million - increase in BV of US$10 - clarity of total value of Riverstone UK Fairfax has a market cap of only US$13 billion. The question, as is being discussed, is what to do with the proceeds? 1.) buy out minority partners in Brit and Allied. If the pricing in the insurance market continies to harden then this becomes more important to do sooner rather than later 2.) grow premiums at insurance operations 3.) buy back stock. We know FFH thinks their stock is very undervalued right now. Lots of good options. Nice to see for a change :-)

Fairfax over the years has made many purchases. What i really like about many of the transactions i am seeing this year is the company is setting units up to be more successful. It sounds like RiverStone wants to grow its business. These moves, because of the cash involved, also provide shareholders with an updated value of the business. My guess is Fairfax has more to come in the next 12 months. With FFH shares trading a little above BV i think FFH is highly motivated to unlock value. I would not be surprised to see a transaction (or a few) that brings in a chunk of cash and allows FFH to buy back a meaningful amount of FFH shares. Regarding the RiverStone transaction i am not sure if the proceeds from OMERS will be going to FFH corporate or to RiverStone to be used to grow their business. “The cash purchase price for the RiverStone UK investment of at least US$560 million, subject to certain book value adjustments at closing, will result in Fairfax recording a gain of approximately US$280 million before tax (an increase in book value per basic share of Fairfax of approximately US$10 before tax on a pro forma basis). Upon completion of the transaction, Fairfax will deconsolidate the UK run-off group and apply the equity method of accounting for its remaining interest. Fairfax may further monetize its remaining interest in UK run-off in the future although the company also retains the flexibility to repurchase its interest over time.”

Thanks for posting link to 50 minute interview. Very interesting to get his views one year later. He sounded pretty bullish about stocks in the near term: monetary easing, decent economy, some improvement on trade front. My concern is i am hearing this from lots of people...

I am not sure who the buyer is. “The interest in Anchorage will be sold by way of a private investment agreement.” My guess is the problem with private investments like BIAL is coming up with a proper valuation. If they sold a portion of BiAL to an outside investor this would perhaps give then an opportunity to update their internal valuation.

Here is an update of Fairfax’s Seaspan investment as of today: 1.) $500 million / $6.50 per share = 77 million shares - $14 (share price today) - $6.50 (cost) = $7.50 = $578 million - investment was made in two stages; 1/2 in early 2018 and 1/2 in early 2019 2.) 25 million warrants: $14 - $8.05 (exercise price) = $5.95 x 25 mill shares = $149 million - awarded early 2019 - not sure how FFH values these as i dont think they have been exercised 3.) APR Energy: $300 mill / $11.10 per share = 27 million shares - $14 (share price today) - $11.10 (cost) = $2.90 x 27 million shares = $78 million - my estimate of what FFH will get when deal closes in Q1 2020 (deal was announced Nov 2019) Bottom line, as of today FFH is up on its Seaspan investment (since inception) $578 + $149 + $78 = $805 million. Yes, it is a paper gain as Seaspan looks to be a long term hold. It does demonstrate how FFH swings for the fences when it invests. And when it connects the returns can be very good (in thiscase 24 months later). 4.) senior notes 2023 = $500 million at 5.5% = $27.5 million interest income each year This part of their investment is icing on the cake. On Sept 30 Seaspan was trading at $10.63. Trading at about $14 today stock is up 32% in past 10 weeks.

I think that anything that resolves the impass is viewed as a positive for the economy moving forward as businesses will now be able to plan knowing Brexit is coming. This is better than the situation that has existed the past 3 years (where no one had any idea what was going to happen).

I do not understand his comparison of US equities today to Japan at their bubble peak. Yes, there are parts of the US market that are bubbly (hello Amazon, Microsoft, Apple). But the rise in a few large caps has been masking weakness in many other parts of the market. The US did have its equity bubble and was 2000. The S&P was at the same nominal value in 2012. When Japan peaked out in 1989 pretty everything over there was at nosebleed levels. (I also remember being taught in Canadain university back then how the Japanese model of capitalism was so much superior to the US model moving forward...) If i had to pick a bubble today... it would be all the negative yielding bonds (not country specific) although Japan and Europe stand out as leaders in this phenomenon.

What is happening? Are we really going to get a US / China trade deal? And Brexit clarity? Both on the same day? Or is this just fake news; a hoax. All we need now is a Santa Clause sighting... If both materialize and provide some clarity/stability we could see a nice risk-on rally in stocks (Santa Clause rally) as we end 2019 and begin 2020. (Of course, the US/China trade spat is just getting started. And much needs to be clarified regarding Brexit. But after all the shitty back and forth for years lets just enjoy the moment :-)