watsa_is_a_randian_hero

I've been looking at this since their last transaction, in september. While I dont buy into the idea that there's an underlying fundamental reason for the valuation (this implies efficient markets), I think the reason for the underlying valuation is lack of liquidity, its being compared to other small banks with much worse performance, and/or its been "forgotten about." For someone that has a multi-year horizon, you can look at it like a private equity investment and wait for a liquidity event years from now with multiple expansion. They won't stay delisted forever. I think there are 4 likely outcomes: 1. Stays delisted until gains critical size (once listing costs in % terms aren't as much) and relists 2. Frank B. Holding's family purchases shares unowned 3. Outside bank purchases 4. Merges with its NC cousin First Citizens BancShares (NASDAQ:FCNCA), also controled by same family

Read the filings from 2005/2006. I work for an investment bank and have personally worked on delistings before. The statement above about them is a generalized statement and not always the case. Oftentimes, when there is a concentrated ownership it does not make sense to pay for the additional costs. This is from their letter to shareholders in 2005 regarding why they delisted: "Additionally, the SOX legislation was designed for ALL public companies, yet the banking industry is already heavily regulated. Even after de-registration, our banks will continue to be examined by the Federal Deposit Insurance Corporation, the South Carolina Commissioner of Banking, and the Federal Reserve Bank of Richmond. Bancorporation will continue to have its annual consolidated financial statements audited by an outside public accounting firm." http://www.sec.gov/Archives/edgar/data/708848/000119312505184802/dex991.htm SharperDingaan - I could say the same comments about FFH. FFH has been acquiring companies. How do we know they are not trying to bury poor underwriting? I think your comments about Madoff are laughable. Madoff kept a ponzi scheme hidden for a long time, but this bank, along with its cousin FCNCA, have both been controlled by the same family from North Carolina for over 70 years. Nothing is impossible, but I have little concern that this is a fraud. Frauds fall apart over time. Google the names Lewis R. Holding and Frank B. Holding. Oh, and 1 other difference, Madoff was audited by his brother-in-law, not a actual auditing firm.

Because I think the risk is less. Its north-carolina cousin, First Citizens BancShares (trades on Nasdaq, FCNCA) is controlled by the same family (Robert Holding was Grandfather, took over in 1934). FCNCA trades at 1.1x book because of its conservatism. If FCBN traded for 1.1x book, it would be at $770. I guess my retort would be there have been plenty of insurers that trade for lower multiples than FFH, but why do people prefer those FFH?

Yeah, this is definitely not something to get into without a multi-year outlook.

You guys should check out FCBN.OTCBB. I've already bought all I want, thats why I'm posting it here now :) Used to be listed stock, delisted in 2006 in order to avoid SOX costs. Has audited public financials dating back to 1989; have not had a single loss. Lowest REO ever was in 2008, at 8.9%. Prior to that, average was around 12.5%. Such a well-capitalized bank that the FDIC has been giving them banks to take over. Because of this deposits are up about 40% through the recession. Current Price $400 - $500 (illiquid because otcbb) Current BV is $709 Current Tangible BV is $473 LTM EPS is $117.27 (PE of about 4) LTM EPS, excluding 1 time gain is $25.65 (adjusted PE of about 18) Based on historical ROE, ROA, earnings/deposits, and return on tangible equity levels in the past, my estimate of earnings in a normal banking environment are $80/share. (forward p/e of about 6) I know there are a lot of bank choices out there; I like this one because of its conservative nature. Reminds me of a Berkshire or Fairfax. The financials speak for themselves; 2005-2009 is on the company's website, 1989 - 2005 is on edgar. http://www.firstcitizensonline.com/about/financial/index.html

After adjusting for ICICI over $400.

This is hilarious. Anyone who has read Black Swan knows Taleb's opinion, that the nobel prize is a joke and should be considered an insult if won.

those are annual default %'s, i believe

Well from their point of view they can't give credit to FFH because of Prem's investment track record. However, they see large concentrated equity portfolios at Polish Re, and at FFH. This makes performance between the 2 correlated. So from their point of view, a market crash coincided with a large reinsurance event could mean FFH doesnt have the $$$ to save Polish Re. Not that I agree with that argument, because FFH's equities have been much safer than Hartford's or Lincoln's fixed income; but the rating agencies don't look at that. They are analyzing 100's of insurers and just plugging numbers into their models.

I work for an investment bank in chicago and have worked on and issued fairness opinions. From that perspective, this deal was definitely fair for ORH. First thing you would look at for a public company is its own price, is the deal higher, yes it was. Second thing to look at would be its peers. ORH's buyout price was way above where its peers were trading for. Both boxes checked. Prem was able to take advantage of the system.

Does anyone know if FFH can somehow retire these early? Tender offer instead of call?

anyone see the stock jump? good opp to do a short term short sale. this is a not a tender offer. this is a filing FFH has to make every year in order to be eligible to repurchase shares from time to time.

book won't have an effect. For $100 transaction, your cash goes down $100, but your assets (net of liabilities) increases 100. The plug figure is goodwill. net book value will decrease, because we are paying a premium to book value.

Right now 45-50%. At times its been over 100% because of leverage.

http://www.fairfax.ca/Assets/Downloads/Press/fpr2009-09-18.pdf

I spent 5 minutes looking at it. valuation isnt that great when you look at 2010 expectations. Why is the rev/net income forecasted to to decline so quickly?

How do you buy? I use interactive brokers and it does not appear. Anyone know of a way to have good access to bond mark, cheaply?

I totally agree with this. However, I would separate commodities to precious metals and industrial/energy commodities. I would rather own industrial/energy commodities, like oil or copper, than gold.

Brox- as Jegenolf said, the fact gold has more value that fiat is irrelevant. I was saying its been chronically overvalued through history (because of its self-perpetuating ponzi-type role as "precious metal"), and becomes even more overvalued during times of crisis. My argument is that assets such as real estate and stocks are better stores of value over the long term. Real estate is something that can be used; and its value typically is based off of the value created by the real estate in its highest and best used. Contrast that to gold, which has some industrial uses; however, the value of gold far exceeds the value it creates in industrial uses. It is valued at $1000/oz not because of its industrial uses.

I agree with Buffett. Gold's traded value far exceeds its industrial value. Gold is the classic Ponzi scheme. You're paying $1000 today for an ounce of a mineral that has literally NO use to you, on hopes that you will be able to sell to someone tomorrow. Like a ponzi scheme, you are paying a vastly overpriced entry point, and the only way you will be able to sell in the future is if someone else is willing to buy at an overpriced entry point also.

From Bloomberg Tripp Levy PLLC announces an investigation into the proposed acquisition of Odyssey Re Holdings Corp. (NYSE:ORH). On September 8, 2009, Fairfax Financial Holdings Ltd. announced that it is proposing to acquire all of the outstanding shares of common stock of ORH that it does not currently own for $60 per share in cash. Fairfax currently owns approx. 72.6% of all outstanding shares of common stock of ORH. Fairfax said that it has no interest in selling its controlling interest in ORH. The investigation concerns whether the consideration to be paid to ORH shareholders is grossly unfair, inadequate, and substantially below the fair or inherent value of ORH. The investigation further concerns whether the directors of ORH, including any special committee members, may have breached their fiduciary duties by not acting in ORH shareholders' best interests in connection with the sale process of ORH. If you are a current holder of ORH and would like additional information concerning this proposed transaction, including your rights, please feel free to contact us at the information below.

I think $60 is a fair price for ORH. A. Its a healthy premium to current market price and any price its ever traded at. B. Its a fair premium for a reinsurer C. For those who believe ORH should be bought at 1.3x like NB, look at the business line. Reinsurers are higher risk, and therefore investors require a higher rate of return on investment and multiples closer to BV. Reinsurers almost always trade at a lower P/BV than P&C insurers. In fact, from FFH's perspective, I would be upset if they paid more than $60. Its not worth it for them to do so. They already have majority control. The strategic advantages of owning 100% and then cost savings of 1 public co vs. 2 only warrant a small premium in my opinion, especially when you consider if they were patient they could continue to buy back 10% or so a year below or at book value.

Its funny, because I found out about FFH through morningstar in 2004. Justin Fuller and Patrick Dorsey were huge bulls. They I believe a $390 fair value estimate for the company in 2004! I forget exactly though, but I have this link that says $344. http://quicktake.morningstar.com/stocknet/san.aspx?id=116986 . I think it started at $390 then they lowered it. Though Justin missed the mark in overvaluing it, he understood the company much better than any of the schmucks they've assigned to it lately, and understood the value comes from the investments. Traditional insurer analysts assume that companies will not be able to generate sustained alpha and focus on underwriting profitability predominately, which is why the analysts lately have been undervaluing it. My opinion on M* in general is that when they went public the quality of their research plummeted; they stretched their team too thin and hired very junior analysts to reduce costs. However, there was a noticeable decline in quality as well. I stopped renewing my subscription in summer 2007. From what I understand, they've done very poor throughout the recession. As typical of Morningstar, they severely overvalued certain stocks (such as homebuilders and banks) and were too late to adjust downward.

"Capital' for insurance companies most often refers to debt + equity. Therefore the price/book multiple could actually be higher if the company has any debt.

AIG @ $50 is the equivalent of AIG pre-split @ $2.5.