FairFacts

The 13 F was filed today. Not much going on: 1. Sold IBM entirely, last reported at $37.1mil 2. Bought $2.5mil GE stock 3. Bought $10.0mil GM stock.

You may be picking up options issued in your share count. Options are not included in shares outstanding until they are exercised.

Bear in mind that on the last conference call Prem stated categorically that the $2bil holding company cash is a defensive posture which may increase over time and NOT excess capital looking for a home. I take that to mean that the buy backs will have to be paid for out of operating cash flow.....

On March 9th, 2018 in the letter to shareholders, page 23, about 1/2 way down Prem states "We continue to like the long term prospects of our common stock holdings, which include names like General Motors..." The 13-f filings do not show a holding in General Motors until the recent Q2 filing. Its a realtively small holding, is this just a minor reporting error or could there be any legit reason? Also, why would he emphasize a GM holding when its so small?

On the recent conference call PW mentioned that Paul is already working on a deal with Omers to buy back the MI in Brit ($435 mil). The only other significant MI is Allied World which has 2 years to go before they can buy MI. So not a huge need for holding cash for the MI buybacks.

Prem Watsa announced that he will no longer host the conference calls, handing over the baton to Paul Rivett. He sounded a little down beat in the announcement section but perked up during the Q&A. He focused (as he always does) on the Culture, Long-term, conservative approach. "We have a tremendous amount of flexibility".

ABM, I may have jumped the gun, I was pointing out consolidated CR at 96% (not Allied).

I read CR of 96% per the press release?

Speak and they shall appear. See Fairfax website under news and events.

Last years slides (from the 2017 AGM) are still up on the Fairfax website, I wonder when they will update them to this years?

1) reweighting the multiple voting shares to maintain control, and after losing the vote, holding a second vote (presumably after twisting some arms of institutional holders?). 2) Using the reweighted multiple voting shares to appoint Ben watsa to the bod, despite the fact that the kid is wet behind the ears and would never be appointed to any other board of a major Canadian corporation on the basis of merit. 3) outsourcing a portion of ffh's investment portfolio to be managed by Ben watsa despite the fact that there are scads of equally well qualified (better qualified) firms in Toronto that are arms length. 4) using the multiple voting shares to appoint Christine to the bod despite the fact that she would never qualify to sit on a bod of a major Corp with her current level of experience. So, it's not a partially favourable trend. It leaves the open question of whether ffh engaged in that shitty Canadian tradition of paying institutional holders for their vote. And it leaves us wondering what other things are being done for the family on ffh's dollar. When the family takes a trip to India related to the dakshana charity, we just hope to hell that it was paid for with family money rather than ascribing business purposes to it and having it paid by ffh. And that's the problem. Once you start with small abuses, the level of confidence amongst minority holders plunges. Sj I hear you! My impression of Prem is based on close monitoring of FFH over the past two years. I have listened intently to the conference calls and studied the results and his commentary. My conclusion is that he is pretty consistent and constantly emphasizes the Guiding Principles and the Fair and Friendly Culture. Now on to your concerns about governance. Points 1, 2 and 4. Multiple voting shares. He states clearly that the purpose behind this move is to prevent 'our' company from being taken over - "now and after I pass away because those shares will never be sold". He goes on to say that his son Ben and Daughter Christine joined the board for the very same reason. Point 3 - Ben managing a $50mil slice of the investment portfolio. "The fund has had excellent results over the six years since it began"...."We invested in the fund to get access to those excellent returns, but also to potentially do debt and warrant deals with some of the fund's investee companies". In otherwords these are all actions very consistent with his long term strategy (never selling etc..) AND fully disclosed, I don't have any issue with them. Now, worrying a little about Allied World...but times will tell....

SJ, What governance issues?

$238mil is the gain on FFH's direct holding in IIFL. Through Fairfax India's holding they will recognize an additional $212mil.

On top of the Quess $600million gain to be booked in Q1 lets not forget about IIFL.... IIFL is splitting into three entities which should happen in this year. Fairfax India is sitting on a $632mil unrecognized gain on IIFL and FFH is sitting on a $238mil unrecognized gain. It the split causes these unrealized gains to be recognized on the books we will see another $450mil gain recognized this year. Thats an 8% gain in BV before we have done anything, balance sheet will look better too (debt/equity ratio improvement). This year could get interesting......

Any interesting take on Fairfax vs Berkshire. The main point seems to be that Berkshire is more focused on quality (ala with a wide moat) and Fairfax on value... https://www.theglobeandmail.com/globe-investor/investment-ideas/fairfax-vs-berkshire-hathaway-which-stock-would-you-pick-long-term/article36932817/

According to the Financial Post today.... 'The unit has generated positive free cash flow since filing in September amid higher than projected sales and lower than expected disbursements, according to the most recent court monitor report. It reported $69 million of cash flow since filing for creditor protection, with a $36.7 million cash balance at March 31.' So if it can do $69mil annual cash flow and get some synergies with the Performance Sports business it looks like a pretty good price to me.

Patience Grasshopper...... I don't get it either, we don't have the info that the Fairfax folks are looking at so I don't sweat over the individual investment decisions. Look at the divestments last year Bank of Ireland, ICICI Lombard, First Capital, all huge winners... as I said patience!

Fairfax has signed an agreement to buy the Toys R Us (Canada).

According to the press release last week, FIH is paying $67mil for the additional 6% of BIA. At 12/31/17 in their Shareholders letter they were holding 48% of BIA at a cost of $585mil and a MV of $608mil. If this is correct they picked up the 6% at a discount both to their12/31/17 cost and MV. Am I missing something?

good conversation going on here......a few things come to mind..... Jeremy Seigel on CNBC yesterday worried about the Fed Forecasting a fund rate of 3.6% by 2020 when the current 10 year is at 2.8% - 'ever since the 2nd WW an inverted curve has presaged a recession. Bill Gross weighed in yesterday saying he sees a 10year at about 3% for 2018 AND he doesn't see the fed going beyond 2 increases. He says that the US and global economies are too leveraged and won't stand a fed funds rate above 2% in a 2% inflationary world. In Dec'17 Oxford University (UK) raised STG750k (about $1bil) at 2.54% on a 100 year bond! Fairfax is refinancing existing debt at 200-300 bps lower than the existing rates. They say the bond market (10x bigger than the stock market) is a far better signal of what is actaully going on in the economy. SOOOOO.....I think lower for longer is here to stay for longer...... How does this affect the FFH thesis?

I am very warm on FFH these days. I'm not sure what the catalyst will be to get the price moving but a couple of thoughts come to mind. 1. Are the AWH shareholders who received FFH shares selling steadliy and thus depressing the price? 2. The market may need to see several quarters of the new approach 'playing offence' and 'disciplined underwriting'. 3. When and in what form will buybacks take? As WB said "The Stock Market is a device for transferring money from the impatient to the patient".

I found the following report that goes into some detail about one re-insurers (Swiss RE) approach to climate change risk. Its worth a read for anyone interested... http://reports.swissre.com/2016/financial-report/responsibility/natural-catastrophes-and-climate-change.html# also, for anyone doubting climate change, this is NASA's position, the graph on CO2 levels is scary.... https://climate.nasa.gov/evidence/

Petec, https://www.bloomberg.com/news/articles/2017-10-06/bass-bets-greek-elections-called-within-a-year-spurring-rally or https://www.cnbc.com/2017/11/14/kyle-bass-predicts-investors-ready-to-put-billions-into-greek-economy.html

Kyle Bass of VC Hayman Capital (macro, event driven focus) reckons that Greece will break out in 2018 with a likely change in leadership. He predicts that Tsipras will be ousted before year end and replaced by the far more business friendly Mitsotakis. He says there is tons of money on the sidelines waiting to flood back into Greece.

I have a nagging concern in the back of my mind that climate change will perpetuate the weather related cat. losses. What impact will this have on longer-term underwriting? Will it hasten hard insurance markets?