Xerxes

John I think of Buffet comment about $100 billion return in the same vein as I do of Watsa being able to pull something close Teledyne’ buyback program. More or less as aspirational goals.

Damn ! that is weird. I have send them an email. The plot thickens.

Thrifty3000 where do you see that. i have been desperately searching for that. i can only see the event date on Sept 16

Here is the FT article. https://www.ft.com/content/40b9b356-661e-11e9-a79d-04f350474d62 I believe this to be the excerpt. "In 2014, Berkshire’s shareholders rejected a proposal that the company should start paying a dividend. But at the time, the company had a far smaller cash pile than today. And analysts wonder if stockholders would vote the same way if Buffett were no longer in charge. The only way Buffett will countenance reducing the company’s massive pile of shareholder equity is to buy back shares when they are selling at a price he thinks is lower than their true value. This amounts, in his view, to buying out a partner at an attractive price. He says the time may come when the company buys back as much as $100bn of its shares (it bought back $1.3bn last year). But what happens when Berkshire’s shares are trading at a fair price, and companies and stocks look expensive too? “That’s my nightmare,” Buffett says."

Not a prediction but just to state that Buffet about a year ago did state in an interview with FT that Berkshire will return in aggregate a sum close to $100 billion to shareholders. I am guessing his view might be that Berkshire machine will throw off so much cash that it cannot dispose of it fast enough through investments. One thing for sure the 2021 AGM will be a super interesting event.

I remember when the Dominion deal was announced, Bloomberg reported “buffet changed tactic after pressure etc”. As if the old man gives a damn what CNBC and Bloomberg commentaries are saying about him. Anyone with a deep conviction to build this $500 billion non-technology behemoth just by doing less stupid things over the long term, cares little about the pundits. The article seem to fail to point out that also in Q2 Berkshire was a net seller of much more and not just the airlines. On dividends, it will only come after the company has bought back the shares of those large block owners that are liquidating for tax reasons or other reasons.. I am guessing there is wave of those shareholders in the next few years, all of which have similar age.

A podcast on the topic (FFH and its African subsidiary): https://www.theinvestorspodcast.com/episodes/tip317-intrinsic-value-assessment-of-fairfax-w-jake-taylor/

SJ, In a CAT-heavy year, wouldn't those liabilities be paid out of the float. Yes, from an earning point of view, a billion paid out due to CAT events in a quarter would pass through the income statement and undo gains in the same quarter, with the net hitting the book value. But from "cash usage" point of view, that $1 billion in liability payment comes from the conservatively run $38-39 billion float. Therefore, at corporate level in Toronto, the team should not be competing for resources, when it comes to capital allocation decisions, in a CAT heavy quarter. Fact is, as insurers, getting hit by liabilities is part of life, it is their cost-of-good-sold that just happen to come later and in a lumpier form, but it does always come in one form and another. I think the {?} that might be coming would be the $10 USD jumbo-dividend in January. That is $278 million in Q1 of cash outflow, in a midst of a second wave, my guess they would keep it, but are probably feeling nervous about it. With an additional 482K of common stock added to his personal holding in July, I would think Prem needs the ~$4.8 million additional flow to his dividend stream as much as the next guy for his personal liquidity reason, but i also know that with so much of his wealth tied in, if he needs to take the axe to it to fortify the company's B/S, he will.

Ultimately, while the team at FFH corporate office has been clever in the last few years in some of its restructuring and non-cash book-value-driven asset swaps, these were all plan Bs, because their original investment thesis (plan A) didn't go through either by bad luck or plain bad judgement. At least FFH corporate office is good at being in the underdog position and are adapting. Some good news perhaps: Looks like Longleaf Partners Fund which had been steadily selling FFH every quarter from 2018 through Q4 2019, is buying back FFH. They know FFH well. But the ultimate long term test toward re-rating would be bringing new institutional investors, though most of those are not comfortable with lumpy return. In its report the fund state, Prem Watsa putting his own money in was a factor. From the report => Ref: Longleaf-Semi-annual-Report-6.30.20.pdf "Additionally, Fairfax Financial (FFH), which was a star in the global financial crisis (GFC) downturn, has so far disappointed from a stock price perspective in the current downturn. From a relative perspective, FFH also suffered as a cloud hangs over many insurers due to the ongoing business interruption insurance debate over COVID-19. FFH was also grouped with emerging market stocks after a decade of value-accretive investments outside of North America amidst an environment where US large cap companies have continued to dominate global markets. We took our time to reassess our FFH case and ultimately decided to buy more, a decision which was bolstered further when CEO/Founder Prem Watsa stepped up with a personal investment of over $100 million. We have filtered through the tough reality of the “new normal” environment into our appraisals for each business and made changes in our portfolio positioning where appropriate to reflect our new outlook." Portfolio Holdings at June 30, 2020 Net Assets Investments EXOR N.V. 8.7 CenturyLink, Inc. 7.4 FedEx Corporation 6.5 Melco International 5.4 Fairfax Financial 5.1 Prosus N.V. 5.0 About Exor, referencing FFH ==> "The COVID impact on top of an already firming price environment is translating to the hardest (most positive) reinsurance pricing environment in years. We believe this is a good time to be allocating capital to the space. That is also part of the calculus in investing in Fairfax and its Odyssey reinsurance subsidiary, with whom our long history also informs our current bullish view. We are disappointednot to receive deal liquidity at what would have been an opportune time, but we were happy to see CEO John Elkann’s discipline in refusing to negotiate a lower, fire sale price in the face of a dramatically improving business environment. PartnerRe is well positioned to thrive over the next f"

Makes perfect sense Parsad. You go for the best risk/reward for that trade. And the spring is loaded on that one. My impression was that though everyone is talking about the short term trade, ... and not enough the long term past the current woes. A series of events turned Berkshire from $10 billion insurance business into a $100 billion conglomerate in early 2000s and it is not just due to Buffet. There was luck involved. Just trying to see what is possible.

I always find the "Schumpeter" column in The Economist fun to read. https://www.economist.com/business/2020/09/26/what-warren-buffett-sees-in-japan-inc

interview with John Chen on BNN. Interesting tidbits on Cylance. https://www.bnnbloomberg.ca/blackberry-reports-q2-loss-revenue-up-from-year-ago-1.1498768

SJ Great point and highly relevant one, which I seemed to have missed in my initial post.

Thanks folks for great posts. I'll edit my first post to add $35 billion as gross premium as idea for 2030-35. Here is the growth over the years. 2000: gross premium $6.5 billion 2001: gross premium $6.83 billion 2002: gross premium $8.12 billion ------- between years, mostly flat, lower and closer to $5-6 billion range [not sure what happened here] 2008: gross premium $5.06 billion 2009: gross premium $5.09 billion 2010: gross premium $5.36 billion 2011: gross premium $6.74 billion 2012: gross premium $7.39 billion 2013: gross premium $7.22 billion 2014: gross premium $7.45 billion 2015: gross premium $8.65 billion 2016: gross premium $9.53 billion 2017: gross premium $12.2 billion [The boost from Allied World, I am guessing] 2018: gross premium $15.52 billion 2019: gross premium $17.51 billion 2030-35: north of $30 billion Was reading Lawrence Cunningham book called "dear shareholders ..." Bought it not because of BRK and FFH, mostly to learn about other companies. That said read the portion about FFH first. The two except on buyback from 1988 and 1999: When he needs to move, he will move. 1988: during 1998, Fairfax shares traded in a range of $11.75 to $15.125. At the lower end of range, we felt our shares were an excellent investment for the company and instituted a buyback of 10% of the float. We managed to purchase only 14,200 shares at average price of $12.94 per share. We will continue to repurchase our shares if we consider that to be the best investment available for your company. 1999:There is a silver lining in every cloud. Because of the very significant decline in our stock price, we were able to buy back 706,103 shares of Fairfax at an average price of $293 per share, approximately 5% of the shares outstanding. So far in 2000, we have repurchased an additional 244,044 shares at an average price of $190 per share. In 1990, under similar conditions, we repurchased 1.8 million shares or 25% of the shares outstanding at approximately $9 per share – one of the better investments we have made!

Finished the book. Great and fast read. I should say though this one (below) has more detail on transactions. The one written by Steve is more high level and has none-BX related stuff in to. i.e. his involvement with WH etc. https://www.amazon.ca/King-Capital-Remarkable-Schwarzman-Blackstone/dp/0307886026/ref=msx_wsirn_v1_2/137-3773990-9794505?_encoding=UTF8&pd_rd_i=0307886026&pd_rd_r=99866a43-0f8d-4b49-a2a9-8dd5b7b9e171&pd_rd_w=Vbt1g&pd_rd_wg=e0mkW&pf_rd_p=4f813f9a-219c-4276-b961-dd64dc407a40&pf_rd_r=STFQZ0KJFZWVJEF65GQQ&psc=1&refRID=STFQZ0KJFZWVJEF65GQQ

While, we tend to focus on the quarterly stream of data coming in for a public company like FFH, the narrative from Mr. Watsa has been to look for the long term. The purpose of this thread is not to re-hash the last 10 years (although i am showing a few metrics from 2010), we got enough threads for that and many horses has been slaughtered in the process, nor is to talk about the current short term dislocation, which many rightly or wrongly believe to be a great opportunity or not a so great opportunity. So where do you see the company in 2030-35. It is a very legitimate question to ask. After all, FFH and Prem Watsa are all about the very long term. To that end, let's ignore the equity bets that gets talked a lot around here. As we know those bets (except for the two mentioned below) are small and in the grand scheme of things were always, I believe, call-options-without-expiry kind of bets. 2030-35 - gross premium written 2010: gross premium $5.36 billion 2017: gross premium $12.2 billion [The boost from Allied World, I am guessing] 2019: gross premium $17.51 billion 2030-35: north of $30 billion [a target] - total float Was $13 billion in 2010 and now is ~$22 billion What does the hardening of the insurance cycle mean for the size of the float. I understand it means more discipline and profitable underwriting, but does it also mean an increase in the absolute size of the float - outstanding shares (hopefully 40% bought back) Was 20 million in 2010 and now is ~28 million; can FFH gobble up 40% of its outstanding shares by 2030-35 and reduce float down to 16-18 million, to pre-2008 levels. Massive share buy back can only be accretive to remaining shareholders if they are investing now in the business themselves. Otherwise you will see a flat share price with lower share count and thereby a shrinkage of the overall market cap. Glad to see there is a no misalignment. - size of the investment portfolio Was $19 billion in 2010 and now is ~$39 billion - book value Was $379 USD in 2010 and now is ~$422 USD ($486 USD in Dec 2019 pre-pandemic to be fair). A flat 1% compounding over ten years due to the shorts etc. With shorts removed and the upside un-capped: An unlikely 15% compounded rate of growth would mean $3,433 USD in 15 years from now A conservative (but possible) 10% compounded rate of growth would mean $1,762 USD in 15 years from now A low 5% compounded rate of growth would mean $877 USD in 15 years from now Should be noted that share buyback above BV tends to lower book-value-per-share and share buyback below BV tends to increase book-value-per-share. WILD CARD (ALPHA): - the size and growth of FIH in 2030-35 - the size and growth of Atlas in 2030-35 Perhaps, for FFH to achieve 15% compounded over the long term, it needs a home run on both of the above. If it gets 1 out of 2 totally right, that would mean 10%, and if gets both wrong, 5% compounded over the long term. Not sure if this is right framework to think about this but this is how i see it. Can Prem pull a Microsoft out of his hat and move away from his Ballmer era ?

Viking Of the ones you tagged as associates you won’t see their share price improvement reflected in BK. Only FFH% portion of their earning gets added to their carrying value (net of dividends received). The big lot for FFH are the associates and you would never see a big bounce on BK because of that. Only a gradual one as the investees earnings improves and start to stack up

At heart Jim Cramer remains a trader. While I always find his 30 seconds buy-sell recommendation hilarious on CNBC, he has a nose for a trend and usually takes profit for that cashmere thing he likes. I do value his interviews with CEOs.

Parsad, While this may seem like a great trade in the next 2-3 years. I think the narrowing the discount will only come on the back of a rising book value, so you would get a double-lift in absolute and relative terms. But then what ... Do you see it as having a real "growth" engine once the discount narrows ... past these relatively speaking low hanging fruits. Maybe we should make it a thread. Where do folks see FFH ten years from now !!!! - size of the float - outstanding shares (hopefully 40% bought back) - the size and growth of FIH - the size and growth of Atlas - book value - share price - hopefully Resolute and Stelco long gone. I like BB converts. Can Prem pull a Microsoft out of his hat

Do you know why BB have failed to gain traction in security? Hi Petec, I don't have background in cybersecurity but do listen to BB conference calls and the space. Last year this time, BB shares plunged some 20% or so. That was on the back on the news that BB has to spend investing in its sales force for the next two quarters, b/c their then-current sales force were what they called "harvesters" and since they bought Cylance they needed "hunters". Ok fine, we need hunters. Prior to that the narrative was that their purchase of Cylance was a coup, since similar names were trading at large multiples. So that there was a value-in-value sum of the parts Watsasim kind of thing, and we needed to be patient. Ok great, I am patient. Then Covid-19 happened and their exposure to auto-sector took a beating. Ok fine shit happens but we still need hunters and i still need to remain patient. But then I was expecting that work-from-home environment would create a tailwind for its cyber-security. Was hoping Cylance would become for BB, what the Cash-App turned out to be for Square. Square's business was hit badly due to their customer segment during the shutdown, but the growth of digital payment app far exceeded their other lagging businesses. Ok fine, perhaps payment space is more prolific than cybersecurity. What do i know, i am an aerospace guy. But then let's compare to its peers during the Covid era. Cylance has (i think) a run rate of $200 million, growing really fast and contributes say a fifth of Blackberry total. For context, few year ago, Blackberry for the first time exceeded $500 million in revenue in software and services and is very close to get to $800-900 million in sales for the year I think. So, it is a big chunk of its future growth bought at $1.4 billion. But compared that to Crowdstrike that is a $30 billion business and it IPO in June 2019. Nearly doubled on the back of revenue growth north of 80%. (source: Google finance); most recent quarter nearly $200 million. So couple hundred millions shy of a $billion in sales. https://marketrealist.com/2019/07/why-blackberrys-cylance-acquisition-is-key-for-revenue-growth/ I dont have a problem with a not moving stock price if the underling is improving as i know that the share are just getting cheaper in relative terms, but i question why its fundamental are not growing with a lifting tide that seems to be lifting Crowdstrike just fine. I did sell half of my BB shares that I bought at $4.5-$6 range few months ago. And start building a position in InterActive Corp. Still have the other half to dispose of that has a cost around $9-$10 CAD. While I trimmed on BB, I did double my FFH position since March, let's say I like to have the exposure more through FFH and its convertibles. Looks like earning call is on Sept 24:

Welcome back to FFH Viking, On Blackberry, I think a deeper FFH investment would be akin like watering your weeds. If someone told me this 3 years ago, I would say yes let’s give Chen time. But now BB already had enough time to build a viable business post-h/w and it has not shown much progress. I am no expert in cyber security but just seeing crowdstrike getting so much traction and BB none, tells me something. I am ok to their position sizing as is. I hope I am wrong.

A deep value investor would have bought RFP years ago based on whatever thesis was out there at the time. A patient deep value investor (not me certainly) would have bought it at $1-2 during the downdraft. If value investing was all about margin of safety, that aspect has become ten-times more important in todays market. If you are a cigarbutt type investor, 20 cent on the dollar is the new 60 cents on the dollar. "Having said that, it is quite comical to experience how a commodity stock can be hammered beyond all logical comprehension. RFP paid a special dividend of US$1.50 a share in 2018, and it was trading as low as US$1.17 per share in April 2020. Back in March 2020, the company announced that it would buy back 15% of its common shares for US$100 million. At the lowest year-to-date price of US$1.17, the whole market capitalization would be approximately US$99 million. In other words, instead of buying back 15% of the company with US$100 million, it could repurchase 100% of the company at one point. RFP shares have since recovered 300% to US$4.69 as of August 25, 2020."

How about Onex, the Canadian private equity company based in Toronto. Shares off from $86CAD pre-pandemic to mid-$60; as much off as FFH. Onex doesnt have a insurance business, but manages third party capital. That is its float. However, it generally invest a lot more alongside its partners, so i believe it makes dough mostly from capital gain as oppose to management fee + carried. Though it has been working to grow that. Both FFH and Onex are of similar size, while the source of float is different, they have substantial assets under management. Larger for FFH at $39 billion compared to $31 billion for Onex. Onex's investment portfolio had about $1 billion loss in Q1, 2/3 of which was reversed in Q2. Somewhat similar to FFH that recovered only a portion of its Q1 impact when Q2 results came out. For Onex, in the Q2 results in August, there is a chart that shows their calculation of value per share that comes to $84. Of that cash + investment with publicly traded shares make up $43 per share. The businesses with private valuation + Onex credit add another $40 per share. And they spend $250 million to buyback their shares at $57 market value. Asked why not more substantial buyback, answer was as investor, they are better off keeping their powder dry. Very much like FFH. The reason why I throw Onex here in a FFH thread is to just point out that even an asset manager (onex) that didn't make weird macro bets & lost, has its share price cut and it has not even recovered by a little. Primarily, perhaps due to the opaque nature of some its more private business, where valuations are subjective. And even then, much like FFH, they are not doing major tender offer to buyback shares. i do wish that Prem could produce a chart like this on page 19, where he would classify all of his investments and put them into three buckets: (1) low to positive impact (2) demand/supply headwinds due to covid (3) direct covid hit. https://www.onex.com/static-files/8361bcc3-f860-4d5f-81be-64dd5868f832

https://www.cnbc.com/2020/09/08/berkshire-hathaway-salesforce-agree-to-buy-into-snowflake-ipo-.html Snowflake IPO gets vote of confidence as Berkshire, Salesforce agree to buy shares

My pleasure, For me the takeaway from the podcast was that post-Buffet era, his controlling position holdings would take a decade until full liquidation by the Gates & Melinda Foundation, after which (or perhaps some years before) the new leadership need to perform as well as Tim Cook did on Apple with no second chances. but they got perhaps 4-5 years grace period.