Xerxes
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Posts posted by Xerxes
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I will just add, i am not looking at position sizing in isolation. I am personally very much in favor of concentrated portfolio, that is why i am in FFH and i think i made it clear over the past year or so. It is the overall story when it comes to the names they had classified as "bad investment",
Again ... if not selling now those bad apples then when. If 45% illiquid position is a reason why they cannot liquidate partially at least Resolute now, well guess what, that reason will always be there. It was there in 2018 when the price spiked. But you wont always have a once-in-a-hundred-years event that brings up the tide on these bad apples.
If they want to ramp up their investment in Atlas, all good for me.
Resolute and BB are relics of the past.
FFH 2.0 doesn't need them, but they are more than welcome to keep a small liquid exposure on them going forward.
PS: And btw, a concentrated portfolio for FFH may or may not mean a large % holding of the underlying equity. One can have a very concentrated portfolio but have very large liquid investment (i.e. Berkshire and Apple; Pershing Square and its 10-stock portfolio). To say that FFH needs to have large illiquid position because it wants concentration is not correct, IMHO.
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Thanks Greg
33 minutes ago, petec said:Leaving aside the fact that the size and liquidity of the position had nothing to do with Prem's inability to sell it last time, are you seriously suggesting that he should size positions on the off chance that they might get gripped by a short term mania and he might want to exit fast? If so, I am not sure you understand how he thinks, and I suspect you shouldn't own Fairfax stock!
For my part, I hope he goes large in great opportunities and makes a lot of money.
Nothing to do, but just fits a pattern.
For a company that prides itself as nimble investor with low overhead and that they can take advantage of opportunities, their inability to monetize their list of unwanted holdings speaks volume. I understand the technicality surrounding the January, (we ll give them a pass) but if they are not doing anything now, this is truly fits a pattern. On Resolute, I might add there was also a price spike in 2018, they just didnt do anything about it.
You are not going to hear me complain about Atlas or Stelco, even as their share price spikes, because I believe they believe in them. All good for me. But for the two properties (BB and RFP) that they have gone on record in saying that they thought it was a mistake/bad-investment, for god's sake monetize it or find it away to capture that gain. If not now, then when ,,,,,
Even he himself has said on record that they have made mistakes on in terms of position sizing in their FAH Africa.
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Excerpt from Q4 2020 conference call. Anyone remember the Rude Gentleman making the comment below. Well guess what, he is going to be there on Q2 2021 conference call I think. The guy was completely off, but he was right about Blackberry.
"Unidentified Analyst
I believe that it is time that you step down from having primary investments, responsibilities. I know that Jamie manages some capital, Wade manages some capital. We all know that those are very small portions of the capital base. And I think you are always quoting your long-term track record, but I can -- I know when the man is out of tune with the markets and I also think that it was a huge mistake if you did not take the BlackBerry gift that was given to you by the market. And I also don't think that you're doing deep analysis on your holdings.
I suspect that you probably don't do a lot of diving into the financials, the statements. You probably don't understand the microeconomics of the businesses you're buying. You probably are not talking to customers, suppliers, competitors, former employees. The investment business is a very competitive business. It's not like it used to be. I am not saying that, you should go out and buy technology stocks, but a sense when the man is not competitive in the field and is not working hard. And I think it's time that you step down from primary investing and I'm sure many of your associates agree with you but because they're Canadian, and tend to be nicer than Americans they don't say anything. And the banks don't ask you any difficult questions, because there's so few good companies in Canada, and they get financing fees from you. So they ask cowardly questions. Thank you.
Prem Watsa
Good points. You're entitled to your opinion, and we will let time decide that, okay? So thank you very much for your comment."
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Funny, how finally it has become plain and clear that the cost of a large illiquid position + >10% far outweigh the benefit of it.
What benefit did Prem had by being a director on BB' board or for that matter a major holder of RFP. Nothing.
With the warrior-trader-priests of WSB Forums creating waives on GameStop, AMC and Blackberry, overturning CAPM and everything else that was normal, ... this is truly a right-tail event for FFH to take advantage, .... TWICE at that.
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I get a feeling that come August, during the Q2 conference call, Prem still hasn't done anything on Resolute and Blackberry. And then few quarters later, he sell both at the loss, which he couldn't do before because [insert list of reasons]
Maybe i am just a pessimist when it comes to FFH ability to at least partially monetize at the right time.
Don't expect miracles here.
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Exchange between Bloomstran and Chamath on twitter (mostly one-sided)
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On 5/29/2021 at 11:33 AM, omagh said:
Fairfax investment team has been really bad over the last ten years and really have only had 1 large winner in the last 20 years -- which they had to pay 1/3 cap gains on.
Imagine that they had actually stuck to their pronouncements back in 2010 that they were going to be buy-and-hold investors in blue-chip franchises like JNJ and AXP -- no cap gains, multiples of original purchase, dividends. Imagine further if FFH cut their debt load and had the financial strength to execute when others need cash instead of having to sell assets to raise capital, often at inopportune times.
Indeed,
Excerpt from the 2012 letter "Long treasuries have outperformed common stocks over the last 20 years as rates have declined from 7.4% in 1991 to 2.9% in 2011. This will not be repeated in the next ten years. The game is over for long treasuries (almost!). Even if the rates go to zero, long treasuries can provide a compound annual return of only 6% in the next ten years compared to twice that by stocks, if we assume no change in P/E multiples and historical earnings growth. If P/E ratios revert back to their mean, shares of companies like Johnson & Johnson can provide compound growth rates of 20%+ in the next decade. We have already sold half our long treasury position at a yield to maturity of 3.0% (realizing a gain of $271 million) and we expect to sell the remaining soon. In time, we will remove our equity hedges as the risks that we see get discounted in common stock prices. The major risks we see are in the next three years, as we expect common stocks to do very well in the next decade"
My conspiracy theory is that, in 2012-2013, they had no choice but to sell out their Four Horsemen (Wells Fargo, J&J, Bancorp and a fourth one if there is one) to fund closing the losing shorts. Kind of like a long-short position that was unwound. It is possible that if they were not constrained by the losing shorts, they would have kept those higher quality entities, instead of climbing down the quality ladder.
Excerpt from the 2013 letter "
A summary of our 2013 realized and unrealized gains (losses) is shown in the table below:
Realized Unrealized Gains Gains Net Gains (Losses) 1,324.2
(Losses) (Losses) Equity and equity-related investments (1,350.7)
The table above shows the realized gains (losses) for the year and, separately, the unrealized fluctuations in common stock, bond and CPI-linked derivative prices. With IFRS accounting, these fluctuations, although unrealized, flow into the income statement and balance sheet, necessarily producing lumpy results (the real results can only be seen over the long term). This table is updated for you in every quarterly report and we discuss it every year in our Annual Report. In 2013, with common stock prices going up significantly, we sold over $2 billion of our common stock holdings, realizing $1.3 billion in gains, offset by the realized loss on our hedges as we reduced our hedges proportionately. Net net, we realized $29 million in gains from the sale of common stocks and bonds and we had unrealized investment losses of $1,593 million (including almost $1 billion from bonds and $0.5 billion from common stocks), for a net loss of $1,564 million on our investments. Our defensive hedges of our common stock portfolio cost us approximately $2 billion in 2013 because of rising markets – a significant portion unrealized of course, in the sense that we continue to be hedged. Given our concern about financial markets and the excellent returns we achieved on our long term investments, we reluctantly decided to sell our long term holdings of Wells Fargo (a gain of 125%), Johnson & Johnson (a gain of 47%) and U.S. Bancorp (a gain of 135%)."
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On 5/28/2021 at 1:24 PM, Pedro said:
I see Stelco and Resolute as strategic investments for a vertically integrated P&C insurer. When your insurerd property burns or crashes, its always good to know own part of the suppliy chain to fix them. I'm fine if their acquired for a higher price or end up as long term holds that hopefully end up paying consistent dividends. The entry price for resolute was not great but the future is bright now at least.
I continue to see BB out of the circle of competance and rationalized as a patriotic CDN investement. Happy to cut that off whenever they can and move on. Expensive lesson in poor position sizing.
Pedro, FFH is a right-hand-side-balance sheet investor. (i.e. financial investor) when it comes to most of its non-insurance subsidiaries or holdings. Don't count on any strategic synergies. Resolute is not a Buffett-like investment where one can take a high-note and declare oneself long-term investor with infinite horizon and then sleep on it for a decade.
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Thanks. I am actually finishing the 2014 book.
Here is an interview the author on his second book on Bloomberg Front Row
"Amazon Unbound" Author Brad Stone on the Rise of Jeff Bezos - YouTube
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Cheers
Same here, though I ordered only the second title.
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Now a business case in business schools
Berkshire Hathaway: Covid-19 and the Great Disconnect | Harvard Business Publishing Education
"We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful." Warren Buffet, 1986 Letter to Shareholders. This investment strategy had proven powerful for Berkshire Hathaway, Inc. It had transformed a bad textile company into a diversified investment company, ranked as the 12th largest company in the world in 2019, right behind Apple. It had made Warren Buffet a billionaire and countless of his shareholders millionaires. At the end of 2019, Berkshire's shareholders included Fidelity Investments and the central bank of Norway. The company's stock was considered the number one retirement stock in America. Amid the 2020 coronavirus pandemic, U.S. financial markets crashed at record speed (-35% between February 12 and March 20, 2020), including the biggest single-day drop ever of -12.9% on March 16, 2020, eclipsing the record of October 28, 1929. Expected to be greedy when others are fearful, Buffet was a net seller of stocks and remained on the sideline during that period. His inaction, combined with an unusually cautionary tone at the annual shareholders' meeting, triggered heavy criticisms. Some of his loyalists sold their stocks. As he was approaching his 90th birthday, many started to wonder whether Warren Buffet had changed his time-tested strategy. Was he disconnected from reality? Was he fearful himself?
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In the meantime, here is a column on him on The Economist
David Swensen, an influential investor, died on May 5th | The Economist
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We have been talking about it. Complaining about for about 5 years and now less complaining but more talking about it, but mostly eager to see how FFH will monetize this largely illiquid position.
For reference, the RFP share price is back where it was couple of years ago. But it took a once-in-a-hundred years event to bring it back there. That says a lot. Whether this is cyclical or secular, I declare myself largely clueless on the matter.
Few facts from RFP:
- Net pension liability of $1.44 billion (I hope the asset side of their pension is not funded by lumber)
- Net debt at $449 million
- OK - cash flow from ops moves from -$49 million in Q1 2020 to +$125 million to $100 million and finally to $158 million in Q4 2020. From Q1 last year to the last quarter in 2020. Total $334 million. Knock out $150 million for capex etc = free cash for $170 million (if lumber prices hold!). Flip it against market cap of $1.5 billion that gives a cash flow yield of 10%. Knock out 3% because you were catching the wave up. That brings it down to 7% cash flow yield, which is not bad, but has a pile of debt + large (net) pension liability.
Fine, if one feel adventurous, one can hold 20% of the company and monetize the other 20% into the cycle. But the rationale question to ask is the following given all i mentioned above, and the fact that FFH already took an impairment few years ago, based on THEIR OWN assessment, why keep a big position.
I am ok with the rest of your note. But disagree on a RFP thesis play that relied on a once-in-a-hundred years event to bring it back where it was.
EDIT: Lastly, 71 million outstanding share of which 30 million are owned by FFH. With a million shares exchanging hands on a daily basis, it will be a long and painful unwind. Specially if the price rallies are on thing volumes.
Incidentally, if you have strong views on Atlas, i would like to hear those, i find the company interesting. Is that a roll-up play for you, an undervaluation of the equity. Or just surfing the wave of the global GDP bounce back (which really can be played with any other asset and with lower risk).
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6 minutes ago, StubbleJumper said:
Maybe lightning will strike twice?
It did ,,, last week.
It is called Ford F-150.
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On 5/25/2021 at 10:05 AM, nickenumbers said:
Yes, I like listening to the TIP podcast from time to time too. I particularly like when they have a quarterly mastermind conversation, with the 4 different perspectives.
I wonder if Stig's partner Preston wore out everyone's patience with his mental anchor on Bitcoin and crypto. I think it is one tool to consider, but it is not the whole tool box. I wonder if Stig had enough of Preston's crypto monolog and that might be why they are not doing the podcast together as much.. I like it better this way with Stig. I like Preston when he has an open clear mind to everything... but he was becoming a bit myopic.
Does anyone have thoughts or information about the status of their co-hosting?
my 2 cents:
i am voracious listeners of business/investing podcasts, but i am not free 24/7 to listen to them as i have a day job. So i listen while driving somewhere or jogging (run about +50-60km per week).
Giving my limited time to soak up podcasts but large supply podcast that is only ever increasing, i have felt that since last summer i am listening less and less to some, and building concentration in others. I don't plan it like that, but the market (i.e. my brain) just goes for the most interesting ones as i leave my house for my daily run.
On TIP, i am actually enjoy listening to some of the older ones, if i want to look an interview with someone who peaked my interest. On the BTC focus, they should just separate them, because even if the episodes shows up as BTC, it still comes under the same banner. And some people get turned away from potential gems, if it is surrounded on screen with the Bitcoin. People usually make their decision in span 5-10 seconds on what to listen or not listen to.
On the pivot itself, it is their business, who am I to complain. They provide a public service (with advertising so maybe not that free), but i am guessing with so much investing/business podcast coming in 2020, they probably have to remain competitive, and Bitcoin is the where eyeballs are (eardrums).
But I agree that in a specific episode at TIP, when they were talking about Brookfield, you had Preston judging it by comparing it return to NASDAQ and to crypto by extension. I understand what he is getting at, but this is like me crashing a Bitcoin party, by telling them how Resolute Forest outperformed Bitcoin since March 2020, so we should be talking about lumber and not crypto. Comparing the return of Brookfield to NASDAQ is not correct.
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8 hours ago, petec said:
$100m investment into Foran Mining alongside Pierre Lassonde: fom_nr_-_fairfax_strategic_investment_-_final_may_25-_2021.pdf (foranmining.com)
It got a mention on Bloomberg this morning in the latter portion of this interview.
Use Commodities to Monetize Inflation, Says Wincrest's Bernard - Bloomberg
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Thanks for posting that, the fact that Bitcoin is not re-absorbing the monetary energy (to use Saylor's wording) that it lost to the alt-coins during a crash is telling.
US Treasuries are the safe haven (among Japanese yen due carry trade) that rally during an equity market dislocation, as investors flee to liquidity. Even the mighty gold usually drops when the actual dislocation takes place.
In the crypto-economy, Bitcoin ought to be the safe haven where these alt-coiners should flee during the dislocation. I was kind of expecting Bitcoin to play that role, I guess it dropped less than others, so maybe still. Though somewhat hard to imagine that a whole host of speculators switching out of Dogecoin into Bitcoin as safe haven, as oppose to the US Dollar.
Of all the Bitcoin and crypto supporters that makes the round in the media, the one i have the most respect is Mike Novogratz. His view always resonates with me, perhaps it is his macro-trader background and the fact that he doesn't get Shakespearean like Saylor. I recall few months ago he was shorting the US Treasury as a hedge against a crypto collapse. This is someone who has been around ... yet is a crypto champion and a long term believer. I would like to invest in him company Galaxy Digital (40% cheaper i think now).
Than there is Jim Cramer who sold most of his crypto on the top of the market and bought a farm. Happy for him. That is also someone who has been around and has a nose for a trade when he sees it and doesn't get carried away. His 'trade' is a good proxy for how the rest of institutional investors probably saw crypto as well. To get on the trade, lever-up and when the time is right to let go.
Lastly, back in 2017, the limited supply narrative of Bitcoin start to be replaced with an actual unlimited supply of crypto-currencies and assets. Same thing is happening now, surely, it takes away from the narrative.
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Thanks, based on the above, I guess it depends when you take T0. This is probably such an old holding (and many ways to calculate the return) that no one in Berkshire itself has the overall math starting from the very initial position with all dividends.
Agreed on Boeing, in fact I would add that most of Boeing's leadership were Jack Welch's proteges, including the one today (excluding Muilenburg, who was equally as bad as he gave away the house through massive buybacks).
The peak of that GE influence though was the McNerney era and the now-famous battle cry of "no more moonshots for Boeing". The seeds of 737MAX derivative were planted right around that time.
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At the very high level, does anyone know if overall Berkshire Hathaway had a good return on Wells Fargo since it got involved a decade ago. Does anyone has an overall gauge ?
I know they have not been exactly selling it into the rally lately.
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OMERS had the ONE job. All OMERS had to do was to clip the 9% coupons from FFH
How did the OMERS scored a negative 2.7-per-cent return in 2020, when the juggernaut CPP return 20%. It could be that CPP year ended in March, therefore they are benefitting from calculating the 2020 annual return from a 2020 low in last March.
Canada Pension Returns 20.4%, Boosted by Stock Market Recovery - Bloomberg
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what's that about LBTYA - Liberty Global Inc. reduced by 80%
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3 hours ago, Castanza said:
Michael Saylor always sounds completely insane to me. He's like the Jim Jones of crypto.
"Bitcoin is a swarm of cyber hornets serving the goddess of wisdom, feeding on the fire of truth, exponentially growing even smarter, faster and stronger behind a wall of encrypted energy" - Saylor
I made some good money on Shakespeare here, when I bought MSTR in mid-Dec and sold it north of $1050 several weeks later. Not in anyway close to the well-deserved 30,000% that Rkbabang tag & bagged !
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No hope. It's dormant call option with shareholder patience as its only expiry
Interesting you mentioned the FANGs. Unrelated to BB and going back to the discussion about the bond portfolio and talks about inflation (temporary or otherwise), it occurs to me at no point in the past 4-5 years have I heard FFH management talk about the impact of deflationary forces unleashed by the rise of the Big Tech' network. It would be more fruitful for them to focus more on that (if they are not already*) as means to try to counter their permanent-inflation-is-overdue thesis as oppose to talk about FANG's lofty valuations, which if i read Globe & Mail article correctly, not so lofty given that Canadian Pacific and CN are making bids at similar earning multiples.
I say if they are not already, just because I don't know.
Fairfax stock positions
in Fairfax Financial
Posted
Parsad,
I am a Prem W. fan and own it specifically to have a different point of view than my own.
But while it is true that they couldn't capitalize in Jan, BB should have capitalize on it. It wasn't too fast for the mediocre management of Viacom, that capitalize on Archeaos bidding up their share price, by pulling an equity issuance into the rally right before the plunge.
Ok maybe it was too fast back in January, but if AMC could be ready for this second round and issue stock, so should BB (assuming FFH is luck-ed out again).