Xerxes

Prem should absolutely use that argument (that is cheap @ 1x earning) when he flips a portion of his shares to the next value investor. Fairly certain this was meant to be a short-term trade gone long-term trade. Unlike the fellow named Sokol, or John Chen or the Steel gentleman and other captains of industry, we never heard much of the different management that have been managing Resolute in the past decade. From the 2018 letter: "We have invested $791 million in Resolute and received a special dividend of $46 million, for a net investment cost of $745 million. Our initial investment was a convertible bond purchased in 2008 for $347 million.We invested an additional $131 million prior to Resolute entering into creditor protection and most of the remainder during the period from December 2010 to 2013. Subsequent to write-downs and our share of profits and losses overtime, at December 31, 2018 we held our 30.4 million Resolute shares in our books at $300 million ($9.87 per share). The current fair market value of these shares is $244 million ($8.03 per share). You can see that Resolute has been a very poor investment to date!" Now that being said: The bull case on this from Fairfax perspective and for NOT selling, is if Resolute can spit out more special cash dividends (pete mentioned that earlier) such that it covers the initial cost and take a king' ransom. As major holder of the name, i hope FFH is pushing for that, and that the surplus earning from these high lumber prices, are being considered to be dividended back to Toronto. No point in re-investing that back into the lumber business (i.e. textile-oriented Berkshire for the good'old 60-70s). Lastly, selling a sliver of the holding, will (might) probably force FFH to account it as equity investment down from fully consolidated. Not that it matters, but I believe (may be wrong on the accounting) that once it is converted into equity-accounting, the one-line item on B/S that represent net asset will have a fair value in line with the market value at which they sold the sliver. That means an upward adjustment from the current book value that was written down couple of times. Yet i also remember that companies cannot undo their previous impairments. So, not sure what happens in the case of moving from consolidated accounting to equity accounting on the B/S.

Not easy with 30 million shares and you got Chou that also owns 4.5 million. Both combined 42% of the company. Who is going to trim first ? or are they looking at each other to see who shoots first ... I dont know if this data is correct from Yahoo Finance: volume is at 3,733,434 shares, but average volume was at 634,903. There should enough volume to absorb a few trim here and there.

Not sure of these two statements are overlapping. Does it mean a combined ~$1.875 billion net gain in Q1, with an understanding a good portion wont go through the P&L. i guess will know tomorrow "Our investments increased significantly with net gains on investments currently estimated at approximately $875 million for the first quarter of 2021, primarily reflecting net unrealized gains from our common stock portfolio. Mark-to-market movements on certain of our non-insurance consolidated investments and investments in associates, which will not be reflected in our financial statements, also increased significantly in the first quarter of 2021 by approximately $1 billion. "

Thanks for posting, i listed to it as well and you pretty much covered anything. The two new managers are humble and eager to get things done. I like the question about alignment. If I understand correctly, what he refers to "investment manager" is not owned by the new operators personally. The two new operators own actual shares of the company. The one thing is missing is that the new management is not "new" in Africa. So i felt they should have perhaps showcased their own past deeds, for the shareholders to get some meat as to what expect.

Finally, I recommend folks to read Markel 2020 letter to shareholders. Here are two passages that are interesting: "Tactically, that decision can be criticized as it caused us to reduce our equity exposure by approximately 20% at lower prices than prevailed at the end of 2020." "In May we raised $600 million of preferred equity to increase the conservatism and heft of our balance sheet and to help fund our growth opportunities. The preferred stock is callable beginning in 2025." One can of course understand the reason for these decisions by Markel, but when squared against what FFH did faced with the same unknowns and landscape, there were no equity issuance (preferred or common) at distress prices. They tapped their line of credit. I recall Amazon following dot.com crash but was largely applauded by raising debt right before and not issuing equity after the crash to survive. What do Amazon and FFH have in common, nothing except that both are led by founder-CEO-operator that cares a lot of his % ownership of the franchise. I don't know how much of Markel does T. Gayner has and i understand that issuing preferred shares are probably not as bad as issuing common equity but still. Lastly, FFH took advantage of the situation: "Net gains on bonds of $460 million includes net gains on corporate bonds of $474 million and net losses of $35 million on government bonds (inclusive of losses on treasury locks of $102 million). The majority of the gains on corporate bonds were from bonds purchased in the first and second quarters of 2020 when credit spreads widened." "After the March/April crash in the stock market, we could not resist buying Exxon shares at a dividend yield of 10.5%, Canadian banks at an average yield of 6.1% and some other companies like Royal Dutch Shell, Alphabet, FedEx and Helmerich & Payne at very attractive prices. We sold approximately half of them in 2020 for a profit of $212 million or an average gain of 40% on our investment." Now, both of these series of investments by FFH were probably done not with new money, but by re-allocation. But still i prefer that than Markel's liquidating 20% of its equity exposure.

Couple of comments as we are approaching the AGM. I don't know when before 2020 FFH entered this arrangement with Chorus, but it showed their interest in the aerospace infrastructure asset. "Fairfax invested Cdn$200 million in debt yielding 6% per annum and warrants which yield Fairfax an implied ownership of 13% in Chorus Aviation, which operates Air Canada’s Jazz regional airline business. Air Canada has a 9.6% stake in Chorus. There is no question that COVID-19 has been catastrophic for the airline industry. That said, Joe Randell and his team have done an outstanding job managing the cost structure of Jazz with its partner, Air Canada. Chorus is still being paid its fixed fee under the Air Canada contract. In addition, Chorus is currently seeing very exciting opportunities in the leasing space as all airlines, including the majors, look to move planes off their balance sheet. While our warrants are currently well out of the money (strike price Cdn$8.25 per share), we are confident the business of Chorus and its partner Air Canada will swiftly recover when travel once again resumes." FFH 2020 Letter for Shareholders Reason i am bring this up is because not long ago, about in Q2 2020, Air Canada did a stock offering as well as convertible offering post-Covid crash. The convertible were told to be sold as a private placement. Of course it could be anyone buying, but given their previous interest in the sector, this would have been an interesting time for them to buy a piece of Air Canada at distress price (without needing 13F disclosure because it is convertible?). It could also be Brookfield Business Partners, given that it actually hired Air Canada CEO as a Senior Advisor and is looking at the aerospace sector very closely for investment. "for aggregate gross proceeds of C$500,500,000 and its concurrent marketed private placement of convertible senior unsecured notes due 2025 ("Convertible Notes") for aggregate gross proceeds of US$650,000,000 (the "Convertible Notes Offering" and together with the Share Offering, the "Offerings"). The Convertible Notes will bear interest semi-annually in arrears at a rate of 4.000% per annum and will mature on July 1, 2025, unless earlier repurchased, redeemed or converted. The initial conversion rate of the Convertible Notes is 65.1337 Shares per US$1,000 principal amount of Convertible Notes, or an initial conversion price of approximately US$15.35 per Share. The Convertible Notes will be convertible into cash, Class A Variable Voting Shares and/or Class B Voting Shares of the Company or a combination thereof, at the Company's election."

Not too contaminate this thread with Brookfield, but wouldn't the Canadian Pacific deal value for Kansas be more applicable for a smaller name like Genesee & Wyoming which is now under Brookfield. Given its smaller size, Genesee & Wyoming would be both marketable to a larger buyer and also the current owner's business is to flip. Lastly, (i dont know if it was mentioned here), it was said on news that an earlier all-cash offer for Kansas by Blackstone was rejected.

Sorry for late reply. Was out of town. When Blackstone carved out the quant division out of Reuters to merge it with London Stock Exchange, I saw the latter as a strategic co-investor. Without it no deal was possible. When ONEX bought WestJet that was entirely out of its funds (so Onex itself + its client), but 15 years before when they bought Beechcraft from the old Raytheon, they did it with Goldman Sachs with the latter as a co-investor. Whenever you see Brookfield bought XXXX, i assume it to be through its funds (so its client + its own equity). But sometimes i believe when they have a strategic partner they mention them in the press release. For instance, believe Caisse was the co-investor in this case. I realize that the press release is (obviously) not saying anything who pays whom management fee. https://www.bnnbloomberg.ca/brookfield-to-buy-johnson-controls-unit-for-us-13-2b-1.1167280 this is obviously speculation and how i kind placed these in my head

ok maybe i am confused. My understanding was that entities like Blackstone, Brookfield, Onex etc, when they invest in assets, there could be several different layers/ways of doing it. (1) investing their fund (which has their client money + some of their own many); this is exposed to management fee and carry. Some of them like Onex have a much larger portion of their own equity into the fund, some which are more asset-light like managers have less. (2) investing directly from their balance sheet alongside their own fund. Additionally, (as we have seen with Softbank), they could have their fund invested (in which they are also investor), but can also use their own balance sheet to bring in additional firepower. Effectively this allows the asset manager to get more of an upside for its own balance sheet at the expense of the management fee it charges the client. (3) getting a co-investor to share the risk. So this would be completely outside the fund and the co-investor brings something that the asset manager doesn't have. In this case, I do not believe that the co-investor is paying the management fee/carry. They are implicitly "paying" because they are sharing the risk and maybe without them a Brookfield wouldn't want to go at it on his own. Call these cornerstone institutional investors. So, in my head, i was kind of placing OMERS in the bucket #3 and not #1

I agree with Pete's post except at this point the third-party capital is purely a guess. Based on what we know now it is not FairfaxAfrica/Brookfield-like asset manager model. Which brings me to my earlier point that OMERS-like entity do not want to own FIH directly because (1) of the fees it pays FFH and (2) non-infrastructure asset exposure that it has like financials services companies and banks. Anchorage gives that freedom. It is no different than when Brookfield allows an institutional investor to invest alongside it, as oppose to that entity being part of a fund (which extract management fees) Anchorage is defined as a "holding company" with permanent capital in the annual letter. So at this point it is no different than FIH as a close-end fund. OMERS (and others in the future) are coming in as equity shareholder with permanent capital. OMERS will own 11% of Anchorage, which currently has only the airport, but will be a 11% owner of everything else Anchorage might invests in the future. Then FIH can either sell more of its 89% stake to other OMERS like entity or (unlikely) issue equity at Anchorage-level. I do recall Prem Watsa accidently blurting out the word "Brookfield" in Q3 or Q4 2019 conference call when discussing India. Transforming his business into an asset manager with third-party capital would bring much needed dry powder. Specially now that Government in India is unloading assets. Saw an article on WSJ just now saying Shipping Corp of India is on the block. Of course us being here in the West, probably do not see the whole scale.

Sorry Bryggen i don't know much about these conferences. otherwise i would have commented it.

Thanks for the link, Very much in line with what we have been hearing from Brookfield, that cash strapped government post-pandemic will be looking to offload assets. Brookfield has third-party capital and dry powder to deploy while Fairfax India somewhat lacks in that area. i.e. FIH has permanent capital that was more or less fully deployed and equity issuance is out of options. The solution is Anchorage. Interestingly, I think as a 'product', the equity of Anchorage is really geared toward institutional investors (i.e. pension), who want the India infrastructure as pure-play but do not want to own it through FIH, where (1) it pays fees to FFH (2) has financials in the portfolio. When a pension fund buys into the equity of Anchorage, effectively, they own the best piece of FIH but without the fees that it pays to FFH. Of course, that also means that Anchorage would have an overhead and management team that need to procured or outsourced back to FIH.

Understood, let's just say i am a romantic for anything related to Canadian North and Arctic. In fact was also looking into going up to Churchill next year maybe.

Not happy about this. Not saying this was a crown jewel. But i do recall at the 2018 AGM, management talking about the potential some decades down the road, as the Arctic opens up for trade, and how they had very limited exposure for a large upside. Two years later it is all gone. I guess if Masayoshi Son can be forgiven to shrink his 300 years vision into managing quarterly results and shorter 5 year timeframe, than we can forgive Fairfax for letting this go. If it was a substantial financial gain maybe that make sense, but they are not disclosing, which means it was not.

Food for thoughts. What does Markel's and FFH's equity portfolio have in common ? Nothing ... For Markel, it is more of list of nameless equity that it shuffles around based on valuations. No sentiment attached. Just a list. For Fairfax, the static concentrated portion of the portfolio that is not run by Wade and Lawrence, seem to be viewed not as stocks but as owning a portion of businesses. You really get a sense of that with Prem walking the reader through the big equity position in his annual report, talking about the CEO and details of the business. The other portion of Fairfax's equity portfolio, (which presumably ran by Wade and Lawrence) seem to capture the beta of the broader market. But is the static concentrated portion of the portfolio make Fairfax look like an unwieldy conglomerate as seen by the market. Personally I like that. Buffet calls conglomerate a term applied to holding companies that own a hodge-podge of unrelated businesses, arguing that in Berkshire' case, although a conglomerate, they do not pay control premium and are happy to have non-controlling stakes. Same goes for Fairfax as the last time they bought a full company at a premium was Allied World. So far so good. Speaking of conglomerates, today Larry Culp is tearing down General Electric. About 20 years ago, GE was so addicted to its cash flows from GE Capital that it couldn't even think of walking away from it and then there was the shadow of Jack Welch looming over the new guy. It took 2008-09 and GE's near demise for the new CEO to step out of the shadow and decide on a vector, but then again took nearly 7 more years before lots of its were spun off as Synchrony Financial and other parts sold to Blackstone. Even that wasn't enough, it took an outsider and a pandemic to make drastic change. Where is Fairfax vis a vis that timeline in its lifetime. Was 2020 for Fairfax, what 2008-09 was for General Electric. Meaning that it was life-changing but not drastic enough for the CEO to truly take the jackhammer out Larry Culp' style.

Superb ! your timing the market definitely beat the timing in the market for the buy-and-hold folks.

It shouldn't matter. Whether the carrying value is above or below the market value, FFH's portion of earning (net of dividends) will continue to stack up on FFH's book value (i.e. carrying value). In equity accounting, market value is only relevant as a yardstick for analyst to question the carrying value.

I just read the FFH letter. Some comments: "The world stopped in 2020. Literally! COVID-19 closed down the economies of more than 180 countries." :-) the letter started off like opening scroll of a Star Wars movie. Fairfax Strikes Back. Overall, I like the length and the level of detail. But here are some nitpicks. -------------------------- "Everything included, we have $21.5 billion in gross premiums worldwide with an investment portfolio of $47.7 billion." Is that a typo; i am pretty sure their investment portfolio is $39-40 billion. -------------------------- I appreciate the effort put in into the equity investment and classification. Interestingly, I couldn't see Toy'R Us which was bought $400 million (i think) and therefore should have fully consolidated as part of the third bucket and is rather a significant sum. I am not sure why IIFL Wealth and IIFL Finance are shown separately on page 10, if they are part of Fairfax India. -------------------------- "During the period from March to May 2020, when corporate bond spreads widened significantly, we added $3.9 billion in investment grade corporate bonds at a yield of 4.1% and term of 4 years Net gains on bonds of $460 million includes net gains on corporate bonds of $474 million and net losses of$35 million on government bonds (inclusive of losses on treasury locks of $102 million). The majority of the gains on corporate bonds were from bonds purchased in the first and second quarters of 2020 when credit spreads widened." Very happy, that we have a definite closure on these in terms of returns. 11% return over six months! -------------------------- "After the March/April crash in the stock market, we could not resist buying Exxon shares at a dividend yield of 10.5%, Canadian banks at an average yield of 6.1% and some other companies like Royal Dutch Shell, Alphabet, FedEx and Helmerich & Payne at very attractive prices. We sold approximately half of them in 2020 for a profit of $212 million or an average gain of 40% on our investment." "Wade and Lawrence had an excellent year in 2020 managing $1.5 billion in invested assets. They did so well that we will give them another $1.5 billion to manage in 2021. At that rate, they will soon be managing the whole portfolio" Couple of points: - The mindless passive S&P500 returned 60% in the same time frame; unless you are building long term position at attractive prices, which is not the case since they sold half, your short term return will be compared with the index. - What was the source of funding for these investments. Readily available cash or other equities were sold at distress price in March to buy these (potentially with better upside). If the latter than you are only riding the beta of the market to play the bounce back, so it is fair being compared to S&P500 return. - Were these $200 million returns managed by Wade and Lawrence ? Using $200 million realized return, 40% return and "we sold half" statement as guide, I can back calculate a $1 billion investment in equities in March 2020. -------------------------- BDT Capital Partner Found this to be interesting holding. I think there was someone on the board that few years ago was talking about BDT Capital Partner and was asking for details. Looks like we got some. -------------------------- A gentleman upthread made a comment about Tesla. Not sure where is that coming from. FFH never disclosed anything about its shorts positions. Folks on this board were speculating about Tesla being a short name, but that was about it. "Over the last 15 years, our insurance business has had a combined ratio less than 100%, but our investment returns in the 2011 – 2016 time period were very poor because of a cautious approach to financial markets (hedging our common stocks) and a stock performance impacted by poor stock selection and ‘‘value investing’’ being out of favour. I said in our 2019 annual report that we would not short stock market indices (like the S&P500) or common stocks of individual companies ever again, and our last remaining short position was closed out in 2020 (not soon enough, as it cost us $529 million in 2020)" I disagree with Prem here. A certain archaic way of defining value investing may be out of favour, but value investing is never out of favour. Microsoft was a value-play in 2011-2013, Apple was value play 2015-2017. Charter was probably a value play few years ago Etc. etc. -------------------------- I am excited about FFH and FIH going forward. I should also say that i have been buying lots of shares of ONEX as well. It is a bit less than Fairfax in dollar terms, but am planning to make the equal dollar term holding. Then it is going to be a horse-race to see who has the most return by 2025. Gerry or Prem.

Although I agree on the description above about opportunity to new comers and existing holders, I don't equate lump return with bad return. Lumpy returns to me, means eventually over a long term horizon you will be made whole, as oppose to smooth return, that is more predictable. I am ok with either one. While I am in your camp + Viking' generally, I do not believe that past the initial value-bounce back that has the advantage of starting off from a low-BV-base, there would be enough fuel in the tank, to push long-term ROE back to 15%. At best, past the initial bump, going forward, we can look forward to 10-15% if all goes well. And I seem to be okay with that. My point is however, the front-loaded positive lumpiness will not be enough to undo the lost decade.

Is it mostly all Scott and some (~1%) Greg Abdel as per Barrons' Did David Sokol sold all of his when he left BRK back in 2011 ?

Thanks The article makes no mention of upcoming disruption of utilities - ie. Chamath's view that the utilities are about to be turned "upside down", whatever that means !

indeed, yet it all makes sense: cheap at the start of new economic cycle >> cheap at the end of the previous economic cycle Just needed a GDP vector + a dearth of other opportunities Maybe 5 years from now, we would say that the dearth of 'big' opportunities in 2020 was the best thing that happened to BRK

I don't view it that way. FFH has had no shortage of places to allocate its capital (some have been good, some have been disappointing), but it has been chronically in need of more to fund its acquisitions, pay that annual divvy and to (not) repay debt. Prem's assertions about buybacks require a fundamental shift in corporate strategy, which is not an impossible outcome but as they say, I'm from Missouri. In contrast, BRK generates about $40b of cash from operations per year, and the investment portion of its SCFP and the cash balance sadly demonstrates a lack of opportunities to deploy that capital. So, FFH might be willing to initiate a long-term significant return of capital, but it is largely unable to do so without a drastic change in corporate strategy. BRK is *fully able* to return $20B per year, but is seemingly unwilling to do so. The outcome has been similar, but the underlying problem is quite different. I would not describe Prem's or Warren's statements as "aspirational" but rather as "disingenuous" in both cases. SJ Thank you to you both for replies, Xerxes & StubbleJumper, Somehow, the whole thing boils down to "hunger" [for returns] vs. risk awareness. [ ; - ) ] - If & when I start selling out of the [monster] Berkshire position owned by my family and I, I'll post about it here on CoBF - You'll likely get no better buying signal! [ ; - ) ] John Don't sell !! :) Berkshire buybacks (pulled from the other thread): 2018: $1.3 bil 2019: $5 bil 2020: $25 bil That is $30 billion right there out of the $100 billion Buffet tossed out in his FT interview in 2018. The ten year timeline has been front-loaded and accelerated by the pandemic.

Agree I think i was saying the samething by saying levering. Just that they could do it now with the D/E being more in their favor, fuel up the tanks vs few quarters ago with their back against the ratio.

The previous $850 million offering went to re-finance previous higher interest debt; so leverage change net zero. The one with $600 million doesn't' have an "allocated objective" in the filing. Wonder if with improvement in its equity and the bounce back in share, they are not using the opportunity to re-lever the D/E back.