Viking

Thanks to all those who have posted on Farmers Edge. If they are only raising $100 million is it possible Fairfax’s stake could be so large? (Not that i am complaining if it is :-) ————————- Lock-up Arrangements: The Fairfax Shareholders, Osmington and Mitsui are subject to a release schedule of one-third of their Common Shares every 6 months (Could this be the exit strategy for Fairfax?) ————————- Use of Proceeds: Net Proceeds of the Offering are intended to be used as follows: (i) approximately 50% of the Net Proceeds of the Offering to strengthen the Company’s financial position, which will allow the Company to pursue its growth strategies; (ii) approximately $● to repay the Company’s outstanding indebtedness, including accrued and unpaid interest, owing to certain of the Fairfax Shareholders under the 2015 Note and the 2021 Debenture; and (iii) approximately $● for working capital.

Fairfax owns debt/warrants in a couple of companies. One is Altius Minerals. The warrants are now trading in the money which is a positive development and something to watch. Principal $78 million (preferred shares i think) Coupon 5% Maturity Dec 2024 Warrant Strike Price $15 (6.67 million shares) Current Stock Price $15.25 Potential ownership 13.4% Newfoundland’s Altius Minerals launches $100-million renewable power IPO to help pivot from coal - https://www.theglobeandmail.com/business/article-newfoundlands-altius-minerals-launches-100-million-renewable-power-ipo/ A rush of money into clean energy companies, coupled with intense investor demand for Canadian initial public offerings, has convinced Newfoundland’s Altius Minerals Corp. ALS-T +1.67%increase to spin out its renewable power division through a $100-million IPO. —————————- - https://altiusminerals.com/ Altius Corporate Information: Altius's strategy is to create per share growth through a diversified portfolio of royalty assets that relate to long life, high margin operations. This strategy further provides shareholders with exposures that are well aligned with sustainability-related global growth trends including the electricity generation transition from fossil fuel to renewables, transportation electrification, reduced emissions from steelmaking and increasing agricultural yield requirements. These each hold the potential to cause increased demand for many of Altius's commodity exposures including copper, renewable based electricity, several key battery metals (lithium, nickel and cobalt), clean iron ore, and potash. Altius is a member of both the S&P/TSX Small Cap and S&P/TSX Global Mining Indices and is focused on growing its royalty business through prospect generation and the creation and acquisition of royalties. Our Assets: Altius holds royalty interests in 14 producing assets throughout the Americas. In Canada these assets include a 4% NSR royalty on Hudbay's 777 copper-zinc mine in Manitoba, 6 potash mines and 5 coal mines located in western Canada, and a royalty on the Voisey's Bay nickel-copper-cobalt mine in Labrador. In Brazil, we have a 3.7% "stream" interest on Lundin Mining's Chapada Mine. We also have a royalty on the Gunnison copper ISL mine in the USA, expected to produce first cathode by the end of 2020. The Company also receives regular dividend income from is equity ownership in Labrador Iron Ore Royalty Company, which is treated as iron ore royalty revenue, being a pass-through vehicle. ————————— Fairfax transaction with Altius in 2017: https://www.pressreader.com/canada/stockwatch-daily/20170227/281487866124089

It will be interesting to see what Atlas has to say about container rates when they report (impact on results and their outlook for 2021). Most of their business is long term contract. 'It's a perfect storm': A shipping container crisis has upended the global food trade Food is piling up in all the wrong places, thanks to carriers hauling empty shipping containers - https://financialpost.com/commodities/agriculture/the-global-food-trade-has-been-upended-by-a-container-crisis ...The core issue is that China, which has recovered faster from COVID-19, has revved up its export economy and is paying huge premiums for containers, making it far more profitable to send them back empty than to refill them. ... “It’s been like that since December,” said Kranig of IM-EX Global. “You’re going to get not only a shortage of food but a shortage of everything. I would not be surprised to hear some beneficial cargo owners’ freight rates for 2021-2022 shipping season double from previous years.”

Fairfax is up about $70 since Sept 30th so Mr. Market might not be all that asleep at the switch. I am surprised Fairfax continues to trade 20% lower than where it was trading 12 months ago. But i looked at a couple of other insurance stocks (Markel and WRB) and they continue to trade +15% below where they were trading 12 months ago. 7 days ago Markel was trading 25% below year ago levels; it is up 10% since releasing results. Perhaps we are at the ‘show me’ stage. Where Fairfax goes from here may primarily be driven by earnings (and book value growth). Given the strength in equity markets in Q4 Fairfax should be able to deliver solid earnings and a nice increase in BV. I am guessing $10-$15 per share. The key for 2021 will be how their equity portfolio performs (i am including in this bucket the wholly owned business like Farmers Edge, AGT, Performance Sports - Bauer, Toys R Us - real estate etc). Most importantly Fairfax needs to start to generate free cash flow across each of its verticals. The insurance operations should post solid operating income in 2021 (dividend and interest income will be challenged but should more than be offset by improvement in underwriting - hard market). The equity portfolio needs to start spitting out cash/increasing BV instead of soaking it up (like the write off at Fairfax Africa and the mystery short position did in 2020). Monetizations/actual realized gains driving BV growth will be key. On the Q3 call Prem said there was significant value and monetizations would happen ‘soon’. Hopefully Mr Market cooperates and they are able to realize some significant realized gains on sales. If we can get BV growing then the shares will follow. And i would expect the discount to BV will also shrink (as Mr Market is happy to pay a higher multiple for the shares).

Removal of trading restrictions by Robin Hood and BB is moving higher again. It has been trading at elevated levels now (over US $10) for 3 weeks. Today it is back over $13. This is giving Fairfax lots of time to figure out and execute if they want to do anything. As a reminder, BB closed at: Sept 30 = $4.59 Dec 31 = $6.63 Today = $13.25 With 102 million shares (incl debs) Fairfax’s position is up about $670 million ($25/share) since Dec 31. The longer BB shares elevated (and go even higher) the greater the chances that Fairfax will do something. My guess is Fairfax shares, trading at $363, are pricing in BB shares trading at $6.63 (or lower). Mr Market also appears to be missing the big move in the last 5 weeks in many of Fairfax’s large equity holdings like Fairfax India, Quess, IIFL Finance, Resolute, Atlas... My math says Fairfax equity holdings are up US$2.65 billion (= $100/share) since Sept 30 ($1.45 billion Sept 30-Dec31 and another $1.2 billion Jan 1-Feb 5). At some point Mr Market will connect the dots :-)

Status update of Russian and Chinese vaccine’s. The more (good) options the better... ————————- Can Vaccines from Russia and China Be a Game Changer? - https://www.spiegel.de/international/world/the-power-of-reliable-data-can-vaccines-from-russia-and-china-be-a-game-changer-a-60b5b595-2c98-475c-b405-10b8cb0d4d03

This is a tough, tough question. Especially to assign probabilities to the various possible outcomes. I am having an especially hard time separating what i hope they did with what my rational brain thinks they have actually done. I voted ‘did nothing’ because i think it the highest probability of all the likely options :-) They had a small opportunity to lock in +$1 billion in gains (from US$6.63). Here is how i am looking at BB: 1.) did nothing - 60% - my weighting is driven by no disclosures and/or Fairfax wanting to stick out the re-build and/or not enough time etc 2.) action locking in up to $300 million in gains 30% 3.) action locking in $300-500 million in gains 5% 4.) action locking in +$500 million in gains 5%

Regarding Blackberry, it makes sense to me Fairfax would want to stay out of the media spotlight right now. Shares could easily come back down to US$7 level in the coming weeks (if not sooner). Fairfax would not want to be painted as being responsible for tanking the shares (with a large, publicized sale). Wouldn’t sit well with the investing public or Blackberry employees (those with stock options). Now if it came out that Fairfax profited AFTER BB shares tank then that would likely be reputation enhancing. We can all hope :-)

The upcoming Q4 earnings release (released Feb 13 last year) will be full of important information for investors. Here is what i will be watching. What are other board members watching? 1.) was BB position monetized in some way in past month? 2.) total mark to market gains on equity investments in Q4? ($350 million or more?) 3.) status of mystery short? Big losses or was the position largely exited in Q3 or Q4? 4.) where does company wide CR come in? Is it lower than PY? 5.) status of reserves? Are we still see a couple of points of redundancies? - do we see any more big covid losses at Brit or other insurance subs? - do we see another asbestos top up in run off (it was $200 million in 2020)? 6.) do we get an update on Digit valuation (given recent round of fundraising)? (Bump BV by +$300-$400 million?) Other items: - closing of Riverstone UK sale? Planned use of $750 million in proceeds? - status update of Anchorage transaction? - status update of asset monetization: Farmers Edge IPO?

With January in the rear-view mirror here is an update of Fairfax's equity holdings. The spreadsheet is attached below. Please let me know if you find any big errors :-). As a reminder, in Q4 their holdings were up about US$1.45 billion (see spreadsheet 2). One month into 2021 their holdings are up about $1.060 billion. So Q4 + January the equity holdings are up about $2.5 billion. Obviously in January Blackberry ($US 14.42) was the driver, up almost $800 million. What does this mean? We should find out in the next couple of weeks, latest when they report earnings. I made a few updated to the spreadsheet: - added John Keells and Nations Trust Bank (two Sri Lanka holdings) - Fairfax Africa has been updated to Helios; I am not sure if I have this holding captured properly. ------------ As a reminder, the purpose of the spreadsheet is to help us understand in broad terms what is going on with the equity holdings in Fairfax's portfolio. Some holdings are mark-to-market; most are not. Fairfax also has debentures (Blackberry) and warrants (Atlas). It is also nice to see position sizes. Fairfax_Equity_Holdings_Feb_1_2021.xlsx

Israel is one model the world will be able to learn from (cigarbutt thanks for the idea). There is some value in having one country serve as a test lab of sorts for lessons other countries can fast adapt to make their effort more successful. Lots to be encouraged about. The idea of giving people who have been vaccinated passports and allowing them to go to restaurant or movie theatres kind of blew me away... that is not that far away. ————————- Israel moves to head of vaccine queue, offering Pfizer access to country’s health-care database - https://www.washingtonpost.com/world/middle_east/israel-pfizer-coronavirus-vaccine-privacy/2021/01/27/b9773c80-5f4d-11eb-a177-7765f29a9524_story.html ...Israel, which some European officials have noted paid a premium for its doses and gets its supply from a Pfizer factory in Belgium, says it remains on track to expand vaccine eligibility in the coming weeks to everyone age 30 and up. Israel’s Pfizer contract was made public in early January but with the specifics of cost and data sharing redacted. According information obtained by the Israeli media, Israel paid about $50 per vaccine, roughly double the cost to European Union countries buying as a bloc. ... Pfizer has privately committed to shipping about 10 million doses to Israel by the end of March, according to Israeli media accounts, a tiny portion of the 1.2 billion doses the company has pledged to countries across the world in 2021. ... Edelstein said Israel is considered a good test case because of its meticulously digitized, decades-spanning trove of data, gathered from a mandatory universal health-care system involving four not-for-profit HMOs. As a country of 9 million with a relatively small elderly population, Israel has inoculated most older residents and begun vaccinating the wider public. The government is preparing “green passports” for those who have received both doses, which would exempt them from quarantine and eventually grant them access to public places like theaters and restaurants. .... Health-care administrators announced Monday that the vaccine may be even more effective than the 95 percent level found during trials. Maccabi, one of Israel’s four HMOs, reported preliminary findings that just 0.015 percent of people became infected with the coronavirus in the week after receiving their second shot. Among the positive cases, none exhibited severe symptoms. ... But Israel’s Weizmann Institute of Science found that a single dose of Pfizer’s vaccine was significantly less effective than had been indicated by the company’s clinical study.

SAP.TO

Has Fairfax had a coherent investment style (for equities/hedging) the past 5 or 10 years? The simple answer is ‘no’. Did they learn from errors made? Some yes. But we need more time to provide a more accurate assessment. Their equity investment portfolio is like a super tanker. It takes years to turn. They are still digging out of some holes, with BB being one of the largest. I am watching where they put new money very closely for signs of what we can expect moving forward. Status of mystery short is one (hopefully they exited in Q4). What they do with BB is another. Position size of Atlas is a watchout. What assets will they be able to monetize and at what prices? Fairfax demonstrating a coherent investing style (equities/derivative positions) is still a work in progress - i would give them an ‘incomplete’ grade if i was a teacher :-) PS: i do think they have been moving in the right direction the past couple of years. We just need to see some large asset sales and what they do with the proceeds to better understand where they are in their transformation to a more coherent (and successful) investing style.

Below is from the last conference call in October. If FFH has short exposure after saying this... Prem's comment from the last earnings call should not give you any comfort. He left himself enough wiggle room by not specifying a time period by which the last remaining short would be closed off. In his words: "I just don't want to fix a time, but relatively soon." Classic Prem speak if you ask me. Prem speak has been covered on this board numerous times before so no need to elaborate any further now. "Relatively soon" in Prem speak is different from what most of us on this board would suggest is meant by the time frame. I have also also worried about Fairfax's short exposure during the last few weeks. Worse care scenario....the last remaining short is GME and it has not yet been closed out! Bearprowler, you capture one of the key problems with investing in Fairfax today... What Prem says, what shareholders hear and what Prem thinks he says are sometimes three very different things. I also understand this is not going to change, especially with Prem being the point person on conference calls again. So i factor this ‘risk’ into my investment decision.

If Fairfax does not monetize a large chunk of BB i will be disappointed. If they have not and the reason they supply is weak then it will reflect poorly on management. (And there is a very good chance the reason could be infuriatingly weak). And poor management decisions is the key reason the stock is trading so much below peers. In terms of pricing i would be happy with anything over US$12. As has been discussed, they have such good uses right now for the cash. And the pandemic is not over. If they do not do anything there is one other possible reason: economic nationalism. Prem may feel Fairfax needs to nurture Blackberry for another couple of years until it completes its transformation. Few tech companies are based in Canada. Selling might be off the table (for now) because it is not a simple financial transaction (based on BB share prcice). Prem wants wait until Blackberry succeeds (to the benefit of Canada). Fairfax will get its payout perhaps in a few years when Blackberry has completed its transformation. I see a possible similar motive with other investments like AGT, Farmers Edge etc. Fairfax provides the seed money/environment/patience to create world class companies based in Canada. I may be completely off base with this comment. What they do with their BB shares and the reasons they supply will be instructive. Will the BB decision (or non-decision) impact what i do with my FF shares? Of course. If they monetize all or a large chunk of BB i will likely want to buy more (assuming i can get some at a reasonable price). If they do nothing with BB the reason they supply will be important. Fairfax continues to be a ‘trade’ and not a ‘buy and forget’ type stock because of management (and their style). My view is Fairfax has been slowly turning the super tanker the past couple of years (making better management decisions). Do we see more steps forward or a few steps backwards? The two big questions for me going into earnings: 1.) what, if anything, have they done with their BB position 2.) update on the mystery short position - a big deal or a nothing burger

How are people thinking about the three virus mutations? 1.) South Africa 2.) UK 3.) Brazil It appears all vaccine’s currently approved are less effective (lower efficacy) with the mutant strains. I am looking very big picture and trying to understand if these new strains are a big deal or a big nothing burger or something in between? Will re-opening of the economy possibly be stalled a quarter or two? With so many total cases all over the globe are even more strains now likely? Governments seem to be quite concerned with new travel restrictions being imposed to try and slow the new strains. Please post any informative articles you come across. I am not concerned... but my spidey senses are tingling. ————————- Novavax vaccine protects against coronavirus in variant hot spots but proved less effective against strain in South Africa - https://www.washingtonpost.com/health/2021/01/28/covid-vaccine-variant-south-africa/ - In a United Kingdom trial, where the B.1.1.7 variant has become dominant, the vaccine was 89 percent effective, and about half the infections were with the variant. - In a smaller and less definitive South African trial, where nearly all the participants who got sick were infected with the variant first identified in that nation, the vaccine was 49 percent effective. But the company underscored that when looking only at people not infected with HIV, the efficacy was 60 percent.

WRB reported two days ago... hard market is continuing with no end in sight. During each quarter of 2020 rate increases accelerated. They are confident rate increases are now running in excess of loss cost trends (which should improve margins over time). I think they said later in 2021 workers comp pricing should also find a bottom. The funny thing is WRB shares sold off very aggressively yesterday (5%) and are trading at the same level they were at back in July. Markel under $1,000 looks interesting (same price it was trading at in June of last year). Surprising Markel has not moved more given Markel Ventures; i don’t think Markel’s equity exposure is as large as Fairfax’s but i think it is bigger than most insurers (please correct me if i am wrong). Fairfax stock has done some serious catching (valuation wise) up the past 3 months compared to where it was trading in October versus its peers.

Greg's not coming back until he learns to resist his urges. Sure, his posts at times are good, but if his instinctive behavior is to stir trouble from time to time, and throw mud, that's not going to happen. And that doesn't apply just to Greg, but to others as well...I don't care which side of the political fence you are on. Learn to use Buffett's adage...if its borderline, don't do it...simple! Cheers! Thanks for providing the clarity. Moderating a board is not easy and you seem to be pretty patient with everyone. Bottom line, if you ask people not to do something and they continue to do it there are consequences. Not that complicated.

Sold some FFH; decided it was time to lock in some nice 20% gains. The last three months has been a moon shot for investors. I have been locking in gains the past week or so and am now at 65% cash. My top 3 holdings are FFH, SAP.TO and BRK. I think all three are cheap (Fairfax was back up the truck cheap back in October). The overall market is starting to look pretty frothy. Yesterday we saw some actual fear in the markets for the first time in months. The WallStreetBets worm looks like it may have turned today; what happens to the overall market when the GME type trades reverse and there is blood in the streets? It is coming we just don’t know the timing :-) The news on the virus front (UK, South African and Brazil mutations) has also been a little concerning; need to better understand what is going on and if it impacts the 2H recovery thesis. Bottom line, happy to book some solid gains and watch from the sidelines :-)

I agree :-)

Imagine if FFH does not sell any shares, Chen earns more than $200 million bonus and shares return to $7 per share in the coming months :-) CEO John Chen could collect more than US$200-million in compensation if recent huge gains in its share price hold up. - https://www.theglobeandmail.com/business/article-blackberry-share-craze-could-yield-windfall-for-ceo-john-chen/ Mr. Chen is in his eighth year in his turnaround attempts at BlackBerry, and has seen the company’s stock rapidly rise and fall for much of his tenure. But he’s seen nothing like the frenetic trading this month: The shares have quadrupled, including a gain of 80 per cent since Friday. Retail investors in the U.S. and Canada, many participating in a Reddit forum called WallStreetBets, have swept them up in a frenzy of social-media speculation. Mr. Chen is poised to be a huge beneficiary. When Mr. Chen renewed his employment contract in March, 2018, he received five million performance-based shares that he’d only be able to sell if the stock hit certain thresholds. He earns each block of one million shares if BlackBerry’s share price hits targets in one-dollar increments from US$16 to US$20 (its shares trade in Toronto and New York). ... When BlackBerry awarded Chen the shares in 2018, they traded at US$10.63, and the targets seemed aggressive, but achievable. BlackBerry needed to return 50 per cent to 90 per cent over five years for the awards to kick in, and the stock needed to nearly triple for the big cash award. It looked much, much harder in November of last year, when BlackBerry traded below US$5. However, in Monday’s trading, BlackBerry shares blew through all five price targets for the first time since the company made the award. The stock rose from US$14.04 on Friday to touch US$20.83. On Wednesday, it hit US$28.77 in intraday trading, before closing at US$25.10. Mr. Chen can’t bank the shares just yet: The terms of the stock award require BlackBerrry to average the minimum price points over 10 days of trading. BlackBerry only began topping the minimums Monday, so Mr. Chen hasn’t qualified for any of the payouts yet. Also, BlackBerry structured the share grant to keep Mr. Chen at the helm for the full five years: The stock “vests,” or can be sold by Mr. Chen, in five annual increments from 2019 to 2023. So even if BlackBerry shares stay up for several weeks, he can’t realize all of the gains for several years. At Wednesday’s closing price of US$25.10, the five million award shares are worth US$125.5 million. If the US$90-million payment is triggered at US$30, the whole package would be worth US$240-million.

Yes! Not sure what I’m nervous of though! I feel exactly the same way. Surely to heavens Prem is selling portions daily as this rally goes on. I would feel much better about Prem having $2B in cash to take advantage of whatever opportunities might exist when this blows up versus hoping for another turn in Blackberry. I'm nervous that he DOESN'T sell - not that he sells too soon :/ I don't care if BB goes to $400 - I'm not going to be mad that he sold at $25. If Fairfax does not sell any BB while it is trading at these levels (US $25 today) and the shares return to $6-$7 i think you will see sentiment in Fairfax hit a new all time low. Especially when Prem tries to explain the logic of not selling...

It appears some analysts are starting to connect the dots for Fairfax and Blackberry. This could. Fuel the next move in Fairfax shares. BlackBerry Revival Rewards Watsa’s Patience With Huge Gain - https://finance.yahoo.com/news/blackberry-revival-rewards-watsa-faith-130443385.html Bloomberg) -- Day traders have pushed BlackBerry Ltd.’s share price to levels not seen in more than nine years. They’ve also given a jolt to a Canadian investment company that got crushed in last spring’s market crash. BlackBerry soared 13.9% to $21.55 as of 10:51 a.m. in New York on Wednesday, bringing its gain for the year to 225%. That is repaying the patience of Prem Watsa and his Fairfax Financial Holdings Ltd., which owns 8.3% of the software firm’s shares, according to data compiled by Bloomberg. Once the toast of the mobile tech world, BlackBerry failed to keep pace with competitors including Apple Inc. and the stock lost most of its value in 2010 and 2011. Around that time, Watsa, a value investor who has tried to model Fairfax after Berkshire Hathaway Inc., began building a large stake, which also includes convertible debentures with a conversion price of $6 each that could be turned into 55 million shares. The run-up in BlackBerry shares this year would drive a pretax gain of about $1.16 billion for Fairfax in the first quarter, Phil Hardie, a Toronto-based analyst at Bank of Nova Scotia, told clients in a note before markets opened on Tuesday. Hardie upgraded his recommendation on Fairfax’s shares to a buy-equivalent. Fairfax closed at C$488.94 on Tuesday. With a 12.7% gain as of Tuesday’s close, it’s the best-performing financial stock in the S&P/TSX Composite Index this year after being one of the worst in 2020 with a 29% drop. Scotiabank’s most bullish scenario for Fairfax “implies almost 50% upside and assumes that the stock sheds its valuation discount and trades at book value, with Fairfax locking in recent gains in BlackBerry through hedging or monetizing its position,” Hardie wrote. Fairfax didn’t respond to a request for comment.

No choice, since he used up his dry powder to buy Cyient. Another way to think of it is the following: broadly speaking with FFH' portfolio doing better now than say 6-9 months ago, has enough 'pressure' been lifted off the dreaded D/E ratios, such that if Watsa chooses to either trim/keep/sell BB it will be entirely based on the merit of the investment and the right-sizing of the portfolio ... and not because he is a situation where he needs to trim/keep/sell. I think with so much treasury and cash in the $40 billion portfolio, he doesn't really need to the 'liquidity' that selling BB will provide to him, other than freeing up capital for another equity investment of the same risk profile, in which case, he would be moving money from something he knows relatively really well to a new name that he probably knows less well ... and in market that is broadly speaking very expensive by some measure and yet fairly valued by other measure (interest rate). EDIT: lastly, if he doesn't do anything about it, when he has the chance, man o man, that is going to be a huge endorsement of BB's potential. It is one thing to talk about its potential when BB is down, it is entirely another thing to have an opportunity to lock-in big short term profit and forgo it ... to me that is going to be a huge bullish signal on BB. The intellectual exercise is fascinating, and I am going to need to some popcorn for the Q4 results. If Fairfax does nothing and Blackberry price returns to earth ($6/share) this will not motivate me to buy Blackberry. It will motivate me to sell Fairfax (all other things being equal). We all have pretty good handle on Blackberry and its potential and its warts. What we have right now is Fairfax is being given a wonderful opportunity. The question is are they going to take it or not. Yes, we should know more when Fairfax reports Q4 results (or sooner if they actually do something :-)

Time value of money has to matter. Certainty over potential has to matter. Realizing a massive gain when cash has wonderful alternative uses has to matter. Bottom line, if Fairfax had an opportunity to sell BB at current prices and they do not i will view it as an error. We are still in the middle of a pandemic. Cash is extremely valuable right now. Especially for Fairfax. It is not unrealistic that we see the virus mutate and the economic recovery is stalled. Stocks sell off. Fairfax taps debt lines further to get through. And are forced to sell some of their best assets because they are in need of cash. This is not a difficult decision (if there is a way to exit).