StubbleJumper

Hopefully, in the annual letter Prem will write, "FFH owned BB for 10 years and was able to exit its position with a considerable profit. Given the time that FFH held the shares, the gains were not outstanding, but it is nonetheless a profitable exit. In the future, we endeavour to focus more intently on risk management, particularly as it relates to our management team's circle of competence and to better consider the importance of position-sizing when we select our investments. BB will not go down as an epic success for FFH, but it has been a valuable learning experience." SJ

It's a good move out of precaution, but my guess is that many of those doses will end up being donated to Nicaragua, Venezuela, or some place like that. In total, the new order of 100m + 100m doses will take the United States up to a total of 600m doses for a country of 330m people. That would be a ~90% vaccination rate, which would be outstanding (and implausible). My guess is that, in our wildest dreams, only 70% get vaccinated which would require about 460m doses. Time will tell, and it is better to have too much rather than not enough. SJ

This is a very important element. The best valuation discussions that I've seen have basically posited that *maybe* in five years BB will have enough earnings to justify last week's price. Discount that back to today... Either there's a whole pile of earnings coming down the pipe that I cannot see, or this beast is a screaming sell at today's price. SJ

The question becomes....how will shareholders feel about Prem if he does not capitalize on this parabolic move up in Blackberry? What will you do if the Blackberry price retreats and we find out that Fairfax did not lock in any of the gains? As SJ correctly points out....a $1 billion unrealized gain on the convertible debs alone? Only of value to us if Prem acts to lock in those gains. Would you be okay if he does not act? If he lets this opportunity pass us by? My guess is that Prem's immediate need is a 6-pack of new underwear because he must be shitting himself about once per day in January. SJ

So the BB convertible debs are now worth $1 billion (55m shares x $18)? Speechless. SJ

That's the math. But, to expand on that math, it's worth noting that all of the car manufacturers in the entire world only build about 70m cars per year, and maybe tack on another 20m commercial vehicles for a total of ~90m. While one might reasonably anticipate that BB technology might find its way into the major North American, Japanese and European cars, I have serious reservations about the likelihood of the lower-end Chinese or Indian manufacturers actually paying to install BB tech into their cars. So, you start with about 90m units, subtract off 30m for those produced in China and India and that leaves BB a potential market of about 60m units per year. If BB were to get their tech into 50m out of the ~60m cars produced in developed countries, that would be one hell of a good market penetration... SJ

No, FFH has no legal impediment to selling its shares. There is, however, a sigalling risk when insiders are dumping their shares. If you can dump them in one large block-trade at an agreed price and then fill out the regulatory filings to make the public announcement afterward, then it's not a problem for you. If you cannot find a buyer for a large block, then you'd need to sell them on the market in small dribs and drabs over the course of a few months (it is a very large stake!). Before you are even able to dump the majority of your position, you'll have had to file some insider transactions reports, which signals to the market that insiders believe that the price is too high. In short, your favourable price could disappear because of your obligation to file. On the other hand, if you were not a BB director, you could quietly dump your shares on the market over several trading sessions and your only need would be to eventually file a 13F a few months later... SJ If the WSB board is what is driving the share price (and that seems to be the case), I'm not sure the signaling risk is as great as it would normally be. How many folks over there are buying because of Prem's involvement? How many are going to sell because Prem is selling? I know very little about the WSB subthread board, but my guess is zero. If the stock starts to lose momentum because of Fairfax selling, maybe then. Volume today and some recent days has been huge. I think Fairfax could dump some shares if they like. You might very well be right that the BB YOLO crowd wouldn't worry one bit about a long-term institutional insider beginning to dump shares. I believe they are bit irrational, so I shouldn't discount the possibility that they might be so irrational that they wouldn't care about insiders' decisions! SJ

It is possible that a forward contract might be used, but the use of derivatives does not exempt FFH from reporting: https://www.osc.gov.on.ca/documents/en/Securities-Category5/csa_20100611_55-312_equity-monetization.pdf Effectively, whether FFH uses direct sales or derivatives doesn't much matter, they must report. So it basically boils down to the same problem in that either you find somebody to buy a large block of shares (or a large-sized forward contract) or you attempt to dribble out your shares over several trading session and hope that the reports of your insider dispositions don't spook the market. With respect to BB not currently being at nosebleed levels, I'm not too sure what to say. After a conversion of the debs, at today's market price, BB would have a market cap of US$8B+. That's 4x BV, and 2.5x Total Assets. That's about 200x this year's likely cash from ops. It's trading on a wing and a prayer. I recognize that there are outfits which trade at even stupider levels, but I haven't seen any compelling arithmetic that would lead me to believe that it's not at nosebleed levels. I'd love to see some well conceived analysis that would suggest that BB is capable of pounding out $800m in annual earnings (ie, PE=10x) at some point in the near future. I am a big fan of ending up on the right side of the greater-fool theory, but the key to succeeding on that is to have an exit strategy. Hold forever doesn't look too compelling for BB shares. SJ

I expect we muddle through with a bit more guidance from the top. Health is a state matter and I don’t think Biden is going to mess with this much. In my opinion, Biden‘s main job is now getting the vaccine in as many arms as quickly as possible and provide the state the resources to keep essential parts like schools open (testing access and funding is safety measures is essential) and hospitals running. In the US, there's not a great many valuable options at this stage. As of today, the US is up to 18 million vaccinated, and that is increasing by about 1 million per day. There are about 50 million Americans age 65 or higher, so by about February 21st, the overwhelming majority of them should have had the opportunity to get a vaccination if they want one. That group alone is about half of the hospitalizations and more than 80% of the deaths. The tone about covid will change significantly by some time in March when the deaths virtually stop and the hospitals begin to empty. The most valuable thing that the president could do at this time would be to try to convince the seniors to lock themselves down for a few weeks until their turn for a vaccination comes. SJ

No, FFH has no legal impediment to selling its shares. There is, however, a sigalling risk when insiders are dumping their shares. If you can dump them in one large block-trade at an agreed price and then fill out the regulatory filings to make the public announcement afterward, then it's not a problem for you. If you cannot find a buyer for a large block, then you'd need to sell them on the market in small dribs and drabs over the course of a few months (it is a very large stake!). Before you are even able to dump the majority of your position, you'll have had to file some insider transactions reports, which signals to the market that insiders believe that the price is too high. In short, your favourable price could disappear because of your obligation to file. On the other hand, if you were not a BB director, you could quietly dump your shares on the market over several trading sessions and your only need would be to eventually file a 13F a few months later... SJ

Yes, the potential value crystallization through an acquisition is the most likely way that FFH exits with a profit. If current market cap after deb conversion is ~$8B, there's no problem for one of the big-boys to offer ~$12B as that would be a drop in the bucket compared to a $1 trillion market cap. But, you make a good point about the value of $100 on 175m cars. What is that worth? I would say that would be worth roughly BB's current market cap. Global auto sales are about 70m units per year. If, by some miracle, BB manages to get its tech into 20% of the autos sold over the next decade, that would be about 140m units multiplied by your hypothetical profit of $100/unit. So, in rough terms $14B profit over a decade. Discount that back to today and it might be worth the current market cap of $8B. Now all you need to do is get your 20% market penetration sometime soon and to have it endure for several years! Let's hope that you are right that one of the big-boys will be a buyer! SJ

Xerxes noted that it is trading X-D today, so shave US$10/sh off the price for that alone. SJ Yes, you are right. Perhaps that problem occurred yesterday? The current USDCAD=1.2646 and the FRFHF/FFH=1.2679, so the prices are at least consistent with today's exchange rate. SJ

Xerxes noted that it is trading X-D today, so shave US$10/sh off the price for that alone. SJ

Okay, I will rise to the bait. YES, if BB were a wholly owned sub, you would have still seen plenty of emotions and reactions to the fact that it has been on the balance sheet for a DECADE and has barely provided any cashflows for the holdco or the insurance subs (the only cashflows have been the interest on the debs). What is more, it has been burning through cash for multiple years, writing down assets and generally languishing. Any wholly owned asset showing those characteristics would have raised the ire of shareholders, unless FFH could find a way to "hide" its poor performance by mixing it in with a bunch of other subs (eg, we never did get much disclosure about how well Toys R Us is doing, nor did we get much info about how the Port of Churchill was doing...they were not material, so that may be a reason for not having provided disclosure, but let us just say that it's nice to not need to provide a detailed report if the acquisitions are losers). The complaints about BB have rarely been about BB's strategy or even their execution. BB has always been a tech company and has always been subject to a rapidly changing operating environment, so that is what it is -- the lack of predictability has been present from Day 1. The complaints have mainly been about the amount of capital that FFH dedicated to a company which clearly is outside of their sphere of competence, and the fact that FFH continued to pile more and more capital into BB as the price declined. This is principally a question of decisions around position-sizing and risk management. That question of position-sizing remains an issue today because it limits FFH's range of potential exit strategies (as an "insider" on the BoD, they effectively cannot easily trim their position because of the requirement for regulatory disclosure for their trades). No comment on BB's transition away from smartphones towards software -- good luck to them. But, at a certain point, shareholders like FFH need to undertake their own valuation exercise. Understanding that there will be 600m shares outstanding after FFH converts the debs and that the prevailing price is US$13+ today, that gives you a basic market cap of US$8B. So, how much annual income do we eventually need to see to support a $8B market cap? My take is that you'd need more income than BB is capable of generating (I threw the question out a couple of days ago and nobody rose to the bait). But, I might be wrong. Trimming your position as the price rises is a very basic strategy to manage that risk. Given the rapid rise in price, I wouldn't even object to the full divestment of the position, but my concern about that is that BB YOLO might not last long enough for that... SJ

Well quite. Hence my question. It's always had significant opportunities. Okay. So, how does BB make money from this, and how much? As a starting point, after a FFH debenture conversion, BB would have about 600m shares outstanding. To justify the current share price, they'd need something like $1/sh EPS, or at least $1/sh of cash from ops, so call it roughly $600m annually. They currently are on target for about $40m of cash from ops, which is actually an improvement over previous years. It's great to partner with other successful companies, but it needs to eventually flow down to the bottom line. The fact that they've generated bugger-all in terms of cash from ops over recent years is their problem. SJ

Business prospects? No. BB is still a dog. Share-price prospects have changed now that BB YOLO seems to be a thing. There is now at least a reasonable prospect that FFH can find a way to exit the BB position without incurring a permanent loss of (our) capital. SJ

In six short weeks the prospects for BB's share price has drastically changed. This morning it is trading at US$11.23, which takes FFH's BB position perilously close to break-even. There's nothing particularly magical about breaking even, but it is emotionally satisfying...even if it does end up taking 10 or 11 years! SJ

Resign from BB's board of directors, and then begin to trim the BB position as the stock price rises? I know, I know, it's a crazy idea! SJ If BB continues even higher is there anything FFH could do in the options market to lock in a certain price. Giving them some time to exit the whole investment? I know, i know... no more derivative bets! :-) I don't mind the idea of managing BB's stock price risk using derivatives -- as long as you choose a hedge ratio between 0% and 100% that's risk management, not speculation like some of the recent derivative debacles. Prem's seat on the board of directors might be the problem with that. Insiders are supposed to report their transactions. SJ

Resign from BB's board of directors, and then begin to trim the BB position as the stock price rises? I know, I know, it's a crazy idea! SJ

Eventually yes, but what really matters now is that the stock price sticks. I think it is true to say that equity gains = capital = more underwriting in a hard market = more subsidiary profit = more dividend capacity to holdco = holdco deleverage etc. If so, the simple fact that their holdings are going up unlocks a lot of good things. Definitely a big piece of good news, and as you said, if the BB price is sustainably higher FFH could write more business. My concern is that the BB YOLO effect could end up being a short-term phenomenon. At some point, reality must kick in for some of the tech stock YOLO investments. Will that be six months from now? A year? I don't know, but at a certain point I would be much happier to see cash or some other more predictable investment on FFH's balance sheet and not such a large slug of BB. But, we now have a happier "problem" today than what has prevailed for the past decade. SJ

Ok, wow... I did some searching and found this. Absolutely bizarre. Don't click the link if you're epileptic. ;D There's more, this is just the first one I clicked... Holy Christ. I am absolutely gobsmacked to see a thread like that. Will FFH's BB investment be rescued by the sudden appearance of a collection of "greater fools?" I guess if you have a choice between being good or being lucky, you'd be well advised to choose the latter... SJ So which one of you planted this thread in Reddit 8) It wasn't me. But, now that you mention it, I am considering the possibility of starting a new thread on this new outfit that I heard of which is likely to skyrocket. It's called the Resolute Forest Products Information Technology Systems corp (you would rightly refer to it as RF-Pits). They have an innovative product called e-paper which will be used by all electric car companies and is already in heavy use at Apple and Amazon... SJ

Ok, wow... I did some searching and found this. Absolutely bizarre. Don't click the link if you're epileptic. ;D There's more, this is just the first one I clicked... Holy Christ. I am absolutely gobsmacked to see a thread like that. Will FFH's BB investment be rescued by the sudden appearance of a collection of "greater fools?" I guess if you have a choice between being good or being lucky, you'd be well advised to choose the latter... SJ

Well, FFH received a valuable OTM option with the roll, but we'll see a reduction of US$10m per year of interest income. If BB actually does turn the corner, that option could become quite valuable. The fact that BB needed to have the coupon reduced is a bit of a concern, because it really does call into question their ability to write a US$535m cheque in November 2023. I can't say that I am particularly surprised by this outcome, but I had hoped for somewhat more favourable terms. SJ Beginning to look like sacrificing the $10M per year in income to restrike the options was worthwhile now that they're sitting on $250M in paper gains on the options ;D Yep, the new option is currently worth a hell of a lot. Even the BB shares that FFH has been holding for a decade have regained a healthy portion of their paper losses. It's a very nice change! The next question is, "What is FFH's exit-strategy?" The recent paper gains are great, but at some point they need to be turned into cash-in-pocket gains... SJ

"Happy states are all alike; every unhappy state is unhappy in its own way" (slightly modified Anna Karenina principle) https://www.statista.com/statistics/1109011/coronavirus-covid19-death-rates-us-by-state/ It's amazing how quickly things change with covid. The state that was ridiculed in this forum 6 weeks ago, South Dakota, has already vaccinated nearly 6 percent of its population. If you believe that the over-65 year-old sub-group is the principal threat to the integrity of health service delivery, South Dakota is roughly one-third of the way to getting that high risk group vaccinated and have a real prospect of easing pressure on their hospitals. Other states are very much lagging behind. If you would have asked me in November which states would be leading in the vaccination process and which would be lagging, I don't think that I would have guessed that the Dakotas would be among the best. SJ

Yes, recharge stations will be required, but possibly not at many as people think. For the typical guy who drives to work and back home every day, stops at the grocery store, and then drives his kids to soccer after supper, he already has plenty of battery capacity for daily use. When he gets home from the kids' soccer, he'll just plug his car in from his house electricity and he'll be ready to roll again the next morning. With this type of use as his primary pattern, his behaviour will change from stopping to buy gas once every 10 days or two weeks to instead plugging his car in overnight at home once every 3 or 4 days. The only time when range might be a problem for him will be on weekend trips out of town, or longer vacation trips. Instead of going to the gas station 25 to 40 times per year (ie, every 10 days or two weeks), he might only use a paid-recharge facility 10 or 12 times per year when he exceeds his car's range. There is, however, a group that will be dependent on paid-recharges, and that is people who are living in houses and apartments without private parking. The people currently using on-street parking cannot simply park their car in their garage or on their driveway and plug their car in overnight. In some municipalities these people who do not have private parking spot are not numerous, but in other municipalities such as Montreal, there is heavy reliance on on-street parking. With current technology that requires perhaps 30 minutes for a basic recharge, I don't view existing gas stations as a model that can shift effectively into electric. The better model would be McDonalds, Starbucks, Dunkin, etc partnering with some outfit to electrify their existing parking lot. So, if you imagine yourself taking a trip that exceeds your car's range, you've probably already driven for 4 hours and you need to take a break to drink a coffee, or eat a burger anyway. So you just plug your car in while you take your break. You probably wouldn't at all want to pull into a Shell station, plug your car in and then twiddle your thumbs for the next 30 minutes. But, all of this is a reflection of current battery capacity and current charging times....all of that could be drastically different in five years. However it evolves, the gas station/convenience stores are in a bit of long-term trouble. They make their money from the traffic of people buying gas, not from the gas itself. The price of gas is ridiculously competitive so the margins aren't great, but they just hope that you'll buy a pack of smokes, a couple of lottery tickets and a gallon of windshield washer fluid while you're stopped for gas (the margins *are* great for those items!). When they lose the traffic from the gas re-fills, are all of those convenience stores viable? I don't think so, but time will tell. SJ